Earnings call transcript: Strattec Security Q3 2025 earnings miss forecasts

Strattec Security Corporation (STRT) reported its Q3 2025 earnings, revealing a slight miss on earnings per share (EPS) forecasts, while surpassing revenue expectations. The company’s EPS came in at $0.65, below the forecasted $0.69, while revenue reached $144.08 million, exceeding the expected $137.27 million. Following the announcement, Strattec’s stock surged 14.75% in after-hours trading, reflecting investor optimism despite the EPS miss. According to InvestingPro analysis, the company maintains a "GREAT" financial health score of 3.33, with particularly strong metrics in cash flow and relative value. The stock appears undervalued based on InvestingPro’s Fair Value analysis.

Key Takeaways

• Strattec’s revenue surpassed forecasts by approximately $6.81 million.
• The company’s stock jumped 14.75% after the earnings release.
• Strattec’s operational restructuring has led to significant cost savings.
• The company has mitigated approximately 30% of potential tariff impacts.

Company Performance

Strattec Security Corporation demonstrated solid financial performance in Q3 2025, with a notable increase in net income to $5.4 million, or $1.32 per diluted share, compared to $1.5 million, or $0.37 per share, in the same period last year. The company’s adjusted EBITDA improved significantly, highlighting a margin expansion to 8.9% from 4.4% year-over-year. These results underscore Strattec’s successful efforts in restructuring and operational efficiency.

Financial Highlights

• Revenue: $144.08 million, up from the forecasted $137.27 million.
• Earnings per share: $0.65, below the forecasted $0.69.
• Gross margin: Expanded by 560 basis points to 16%.
• Cash from operations: $20.7 million in Q3, with a year-to-date total of $41.5 million.

Earnings vs. Forecast

Strattec’s Q3 2025 EPS of $0.65 fell short of the anticipated $0.69, marking a 5.8% miss. However, the revenue exceeded expectations by 5%, coming in at $144.08 million against a forecast of $137.27 million. This revenue beat suggests strong sales performance, which helped offset the impact of the EPS miss.

Market Reaction

Following the earnings release, Strattec’s stock experienced a significant increase of 14.75%, closing at $42.00, up from the previous close of $36.60. This surge positions the stock closer to its 52-week high of $53.01 and reflects positive investor sentiment driven by the company’s robust revenue performance and operational improvements.

Outlook & Guidance

Strattec anticipates realizing the full benefits of its restructuring efforts by Q1 FY2026, with projected annualized savings of $5 million. The company estimates capital expenditures for FY2025 at approximately $7.5 million and potential annual tariff-related costs between $9 million and $12 million. Strattec has successfully mitigated around 30% of these tariff impacts thus far.

Executive Commentary

CEO Jennifer Slater remarked, "We’ve built a more agile, focused organization that is positioned to deliver through cycles," emphasizing the company’s strategic direction. CFO Matthew Polly added, "Our results demonstrate the team’s commitment to delivering sustainable margin improvement." Slater also expressed confidence in mitigating the full tariff exposure, underscoring the company’s proactive approach to external challenges.

Risks and Challenges

• Tariff and trade policy changes could impact costs and profitability.
• Fluctuations in automotive production volumes may affect sales.
• Supply chain disruptions could pose operational challenges.
• Economic downturns may reduce consumer demand for automotive products.

Q&A

During the earnings call, analysts inquired about Strattec’s tariff mitigation strategies and the potential sale of its Milwaukee facility. The company confirmed its focus on the automotive market and reiterated that no significant demand fluctuations have been observed.

Full transcript - Strattec Security Corporation (STRT) Q3 2025:

Conference Operator: Greetings, and welcome to the StratTech Third Quarter Fiscal Year twenty twenty five Financial Results. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Deborah Pawlowski, Investor Relations for StratTech.

Please go ahead.

Deborah Pawlowski, Investor Relations, StratTech: Thank you, and good morning, everyone. We greatly appreciate you joining us for StratTech’s third quarter fiscal twenty twenty five financial results conference call. With me on the call are Jennifer Slater, President and CEO, and Matthew Polly, Vice President and Chief Financial Officer. Jen and Matt are going to review our third quarter twenty twenty five financial results and provide an update on the progress being made to transform StratTech. You can find a copy of the press release and the slides that accompany our conversation today on the Investor Relations section of the company’s website.

If you are reviewing those slides, please turn to slide two for the Safe Harbor statement. As you are aware, we may make some forward looking statements on this call during the formal discussion, as well as during the Q and A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated on today’s call. These risks and uncertainties and other factors are discussed in the earnings release, as well as with other documents filed by the company with the Securities and Exchange Commission. You can find these documents on our website or at sec.com.

I want to also point out that during today’s call, we will discuss some non GAAP measures, which we believe will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation, or substitute for results prepared in accordance with GAAP. We have provided reconciliations of non GAAP to comparable GAAP measures in the tables accompanying the earnings release and slides. So with that, if you would please turn to slide three, I will turn it over to Jim to begin.

Jennifer Slater, President and CEO, StratTech: Thank you, Deb, and welcome, everyone. I’m pleased to share our third quarter fiscal ’twenty five results and provide an update on the transformation of StratTech. Once again, we delivered solid performance with meaningful progress on both financial and strategic fronts. Let me begin with a few highlights from the quarter. We generated nearly $21,000,000 in cash from operations in the third quarter, bringing our year to date total to $41,500,000 This strong cash generation reflects the significantly improved earnings power of the business and our disciplined approach to working capital management.

With over $60,000,000 in cash and limited borrowings on our revolver, we’re operating from a position of strength, one that gives us considerable flexibility to navigate today’s increasingly dynamic market conditions while executing on our long term strategic priorities. The actions we have been taking to improve the business, including taking out costs and capturing price, were demonstrated by meaningful margin expansion. Year over year gross margin expanded five sixty basis points and sequentially margin expanded two eighty basis points. This improvement more than covered the investments we are making in talent within the organization and as a result, we posted net income of $1.32 per diluted share, a more than threefold increase from last year’s third quarter. Adjusted EBITDA was $12,900,000 or 9% of sales, up from 4.4% in the prior year period.

This continued margin expansion gives us confidence that StratTech is on the right path, but we believe there is more work to be done. Turning to our strategic transformation efforts, please turn to slide four. Our teams remain focused on strengthening Stratex operational and financial position. We took another step forward by implementing a restructuring of our Mexico operations in March. Combined with earlier actions in Milwaukee, total annualized savings from fiscal twenty five restructuring activities now total approximately $5,000,000 Importantly, these actions reflect a broader cultural shift, one where cost optimization and margin expansion are priorities for the organization.

We are also taking proactive steps to manage through the evolving tariff risk. While the situation remains fluid, it’s also important to note that over 90% of our U. S. Sales volume is USMCA compliant and therefore should not have any impact to our business. We estimate the annualized impact of recently announced U.

S. Tariffs to be 9,000,000 to $12,000,000 in added costs before mitigation. That said, we’ve moved quickly. We’re actively adjusting logistic routes, engaging in pricing discussions with customers, and shifting sources in our supply chain. Matt will cover this topic in more detail during his section of the presentation.

Our strong balance sheet and internal momentum give us confidence that we can absorb and adapt these changes while continuing to drive performance. Let’s turn to Slide five to discuss our sales results. The modest improvement in sales year over year was a result of favorable pricing actions, improved product mix and net new program launches. I’m especially pleased with the continued success we’re seeing in placing higher value content on existing customer programs. A clear indication that our commercial and engineering investments are paying off.

In summary, the work we began early in fiscal twenty five is now showing up clearly in our results, in margins, in cash flow, and in our ability to control our destiny. While macro uncertainty remains, including tariffs and industry volume pressures, we’ve built a more agile, focused organization that is positioned to deliver through cycles. With that, I’ll turn it over to Matt to walk through the financials in more detail.

Matthew Polly, Vice President and Chief Financial Officer, StratTech: Thanks, Jen, and good morning, everyone. Let’s begin with Slide six. Our gross profit for the quarter rose significantly to $23,100,000 up from $14,700,000 in the prior year period. Gross margin expanded by five sixty basis points to 16%, driven by a $4,400,000 benefit from a stronger U. S.

Dollar, strategic pricing actions and continued operational improvements in material and labor cost efficiencies. These gains more than offset $800,000 of additional tariff expenses stemming from recent changes in U. S. Trade policy. Given the timing of restructuring actions that Jen explained earlier, our quarterly results include a partial period benefit from the restructuring actions of about 200,000 We anticipate these actions to be completed in the fourth quarter.

The savings will phase in and be at full run rate in the first quarter of fiscal twenty twenty six. Year to date gross margin improved by two forty basis points, reflecting these same drivers, pricing discipline, cost optimization and FX, partially offset by elevated labor costs in Mexico and ongoing tariff headwinds. Let’s turn to slide seven and delve a little more into the tariff situation and why we think we are in a fairly good position. Our current tariff exposure remains manageable. Approximately 65% of our products are imported into The U.

S. From our Mexico assembly operations and of that volume over 90% is USMCA compliant. Therefore, only about 6% of consolidated sales or $30,000,000 is currently subject to the recent tariffs. As Jen mentioned, we estimate that the potential tariff related costs are 9,000,000 to $12,000,000 annually before any mitigation actions. We have currently mitigated about 30% of the tariff impact and are in the process of pursuing commercial recoveries for the balance.

While confident in the recovery of the remainder, we are working through the process and timing with our customers. We’ve taken swift and coordinated steps to manage this additional cost. Internally, we’ve launched a dedicated tariff task force, added trade compliance expertise and are reassessing our global supply chain and current logistics processes. Turning to Slide eight, engineering, selling and administrative expenses were $16,000,000 up $3,300,000 from the prior year, representing 11.1% of sales. This increase reflects deliberate investments in our transformation initiatives, including an $800,000 restructuring charge and $400,000 of additional salaries as we add talent to our organization.

The quarter and year to date comparisons are also impacted by higher incentive and bonus expense of $1,200,000 and $2,800,000 respectively. This is a result of improved year over year financial results. In addition, on a year to date basis, our administrative expenses include $2,100,000 in executive transition costs, up from $1,100,000 a year ago as we realigned our leadership structure. Let’s move to slide nine where we summarize our profitability. Net income attributable to StratTech was $5,400,000 for the quarter or $1.32 per diluted share compared with $1,500,000 or $0.37 per share in the third quarter last year.

On an adjusted basis, earnings per share increased 305% to $1.5 Adjusted EBITDA rose sharply to $12,900,000 representing an adjusted EBITDA margin of 8.9%, up four fifty basis points. Our results demonstrate the team’s commitment to delivering sustainable margin improvement. Now turning to slide 10, which highlights our cash flow, balance sheet and capital priorities. Operating cash flow was strong at $20,700,000 a meaningful turnaround from a use of cash in the same period last year. This improvement reflects enhanced profitability and disciplined working capital management.

During the quarter, we saw a $6,000,000 reduction in inventory levels and also extended our accounts payable to more closely align with our customer payment terms. Year to date operating cash flow reached $41,500,000 Our cash position at the end of the quarter was $62,100,000 with approximately $47,000,000 available under our revolving credit facilities. We believe we have ample liquidity and financial flexibility to invest in organic initiatives and manage the current market conditions. Year to date capital expenditures totaled $4,200,000 consistent with our focus on new product programs, productivity enhancements and IT infrastructure upgrades. Our capital priorities as we advance through the transformation of the business are internally focused on operational efficiencies, leveraging productivity tools and IT investments and driving organic growth through better market positioning, branding and commercial processes.

We are also being conservative with our cash through these rather uncertain times. In summary, we are pleased with the solid financial progress this quarter and the momentum we are building through our strategic execution. With that, operator, we’re ready to open the line for questions.

Conference Operator: Thank you. We’ll now be conducting a question and answer If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

Our first question is from John Franzreb with Sidoti.

John Franzreb, Analyst, Sidoti: Good morning, everyone, and congratulations on a great quarter. Jen,

Conference Operator: I got a marvel at how

John Franzreb, Analyst, Sidoti: well you’ve negotiated this tariff environment. I’m kind of curious on two things. One, what was the absolute number of the impact of tariffs in the third quarter? And two, when you talk about the moves that you’re making to mitigate some of your remaining exposure, that 9,000,000 to $12,000,000 how much do you think you could bring that down through logistics or suppliers and things like that?

Jennifer Slater, President and CEO, StratTech: Thanks, John. It’s a great question. I’ll talk a little bit about how we manage the process. I’ll let Matt give you the exact number in Q3. So we really started with what we could control quickest.

We implemented some kind of no regrets move on logistics, where we were shipping across the border to The U. S. Just to ship back into other countries. So we’ve changed our logistics routes to ship direct to the customers. The second thing, obviously, we’ve continued to talk through our customers on commercial recovery.

And then what takes a little bit longer is on the supply chain and moves from a procurement standpoint for sourcing. We feel confident that we can mitigate the full tariff exposure through all three of those things. And we’re working with our customers now on the process of recovery, which we expect to get full recovery.

Matthew Polly, Vice President and Chief Financial Officer, StratTech: A financial perspective, in the third quarter, it was an incremental $800,000 of tariffs, which is primarily all the month of March.

John Franzreb, Analyst, Sidoti: Got it. And when you what kind of operating environment are you actually assuming with your customer base for the balance of the year? Any kind of material changes than you were thinking about, say, three months ago?

Jennifer Slater, President and CEO, StratTech: I think we’re continuing to monitor automotive production and impacts of what tariff exposure has on our customers that will impact sales. And we’re making sure that we’re prepared for any material impacts on production and getting our cost structure right.

John Franzreb, Analyst, Sidoti: Speaking of the cost structure, dollars 4,000,000 benefit from price and labor. What’s the mix of price that you’re able to realize versus the labor cost savings from the headcount reduction?

Matthew Polly, Vice President and Chief Financial Officer, StratTech: Yes, it’s about $2,500,000 of price in the quarter. So I think we talked about it last quarter, where we had, a customer extend program and we were able to go in and kind of requote and get the pricing there. So, the pricing benefited us both on the key and lockset product line as well as our power access product line.

John Franzreb, Analyst, Sidoti: Got it.

Jennifer Slater, President and CEO, StratTech: And then on the restructuring savings, John, we haven’t seen the full value of that yet in our results. We expect to see that as we go forward.

John Franzreb, Analyst, Sidoti: Any sense that how much 12% headcount reduction comes in on an annualized basis in savings?

Matthew Polly, Vice President and Chief Financial Officer, StratTech: Well, full restructuring for both Milwaukee and Mexico is about $5,000,000 on an annual basis. We only saw about $200,000 in the current quarter, and a lot of the actions in Mexico were at the end of the quarter. So we’ll see that ramp up, and be at the full run rate in the first quarter of twenty twenty six.

John Franzreb, Analyst, Sidoti: Okay. And I guess one last question. Cash is building two parts to that. One, what’s the CapEx budget going to look like for the balance of this year and maybe some thoughts into next? It seems like there’s equipment upgrade going on.

And secondly, it’s been a while. Any thoughts about reinstituting the dividend?

Jennifer Slater, President and CEO, StratTech: Yes, I think first I’ll just answer that. We feel fortunate that we’ve had the cash balances. We continue to navigate through the tariff environment and any near term production challenges. Our efforts really have been internally focused as we look at modernizing our operations and looking for where we have organic growth opportunities. I’ll let Matt kind of talk through where we are from a rest of the year projection.

Matthew Polly, Vice President and Chief Financial Officer, StratTech: Yes. From a CapEx standpoint, on a go forward basis, think about it around $10,000,000 We’ll be definitely less than that this fiscal year, so probably maybe 2,000,000 to $3,000,000 here in the back half or the last quarter of the year. We’ve We will be making some equipment upgrades. There are also the last bit of IT infrastructure upgrades. But that’s how I think about CapEx, roughly around $7,500,000 this year for the full year.

John Franzreb, Analyst, Sidoti: Any thoughts on the dividend?

Jennifer Slater, President and CEO, StratTech: Yes. I think we’re just managing through near term first, John. But we are always considering our internal and external capital allocation. We’re just not there with some of the uncertainty in the environment.

John Franzreb, Analyst, Sidoti: Okay. Fair enough. I’ll get back into queue. Thank you.

Jennifer Slater, President and CEO, StratTech: Thanks, John.

Conference Operator: Our next question is from Ethan Starr, Private Investor.

Ethan Starr, Private Investor: Good morning and congratulations on a great quarter. Morning. I’m wondering if you have any comments at this juncture on the potential possible sale of your Milwaukee building facility.

Jennifer Slater, President and CEO, StratTech: Good morning, Ethan. Thanks for the question. We’re really pleased with the progress that we’re making on the potential sale of the facility. We’re not yet ready to make any announcements on where we are, but we are really pleased with the progress.

Ethan Starr, Private Investor: Okay, great. And I know you’re really focused internally and stuff, but I’m wondering if you’re perhaps looking into ways that StratTech can expand its offerings to potentially adjacent industries other than automotive.

Jennifer Slater, President and CEO, StratTech: That’s a great question Ethan. I think we have a lot of opportunity still within automotive and transportation. Our first focus is understanding what addressable opportunities do we have in the markets we serve today. Once we get through that, we’ll look at what other opportunities do we have in adjacent markets.

Ethan Starr, Private Investor: Okay, thank you very much.

Jennifer Slater, President and CEO, StratTech: Thank you, Ethan.

Conference Operator: Thank you. There are no further questions at this time. There is actually one follow-up. Our next question is from John Franzreb with Sidoti.

John Franzreb, Analyst, Sidoti: Just two questions, I guess. One, I’m curious if you saw any pull forward in demand as maybe some of the customers wanted to get ahead of tariffs. And two, can you just kind of share with us how April and May are proceeding relative to what you saw in the first quarter?

Jennifer Slater, President and CEO, StratTech: Sure. We have seen some inventory buildup in the past from our customers. But what I would tell you is that our customers have done a really nice job to make sure that they’re giving us some stable demand signals. So we don’t see any fluctuation major fluctuations up and down from what we’re planning through the quarter.

John Franzreb, Analyst, Sidoti: Okay. Fair enough. Thank you for taking the follow-up.

Jennifer Slater, President and CEO, StratTech: Thanks, John.

Conference Operator: There are no further questions at this time. I’d like to hand the floor back over to Deb Pawlowski for any closing comments.

Deborah Pawlowski, Investor Relations, StratTech: Thank you, and thank you everyone for joining us today. If you have any questions or need any follow-up, I can be reached at (716) 843-3908, and my email is on the news release. Have a great day.

Conference Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.

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