STRATTEC SECURITY CORPORATION (“STRATTEC” or the “Company”)
(NASDAQ:STRT) today reported operating results for the fiscal first
quarter ended September 29, 2019.
First Quarter Highlights
- Net sales for the current year first quarter were $120.0
million, representing a 2.4% increase from net sales of $117.2
million in the prior year first quarter. The impact of the
General Motors UAW strike reduced the current quarter sales by an
estimated $3.0 million.
- GAAP net income and diluted earnings per share were $1,244,000
and $0.33 respectively, compared to GAAP net income of $3.5 million
and $0.93 earnings per share in the comparable prior year
period.
- Excluding the impact of the non-cash compensation expense
charge of $2.2 million incurred during the current year quarter,
which is described below, adjusted first quarter net income was
$2.9 million and $0.79 diluted earnings per share compared to $3.5
million and $0.93 diluted earnings per share in the prior year
first quarter. Prior first quarter results adjusted to
exclude a one-time favorable tax adjustment that increased the
prior year quarter diluted earnings per share by $0.10 or would
have resulted in adjusted diluted earnings per share of $0.83.
- Non-cash compensation charges are related to the future
transfer of the excess plan assets remaining in the STRATTEC
pension plan, which was terminated during our fiscal year ending
June 30, 2019. The excess plan assets will be transferred to
the STRATTEC defined contribution plan in December 2019.
STRATTEC will also incur a similar non-cash compensation charge in
the second quarter ending December 29, 2019, which should be the
last remaining such compensation charge arising in connection with
completing the full termination of the STRATTEC pension plan.
- The GAAP based non-adjusted decrease in Gross Profit margin in
the current year quarter compared to the prior year quarter was
attributed to a $1,366,000 non-cash compensation expense charge
incurred during the current year quarter. The GAAP based
non-adjusted increase in Selling, Engineering and Administrative
expenses in the current year quarter compared to the prior year
quarter was primarily attributed to an $862,000 non-cash
compensation charge incurred during the current year quarter.
- During the current year quarter borrowings on our credit
facilities were reduced by $6 million to $36 million.
For further information, see the Non-GAAP to
GAAP reconciliation tables, along with the explanatory note
following the table, included in this release.
STRATTEC SECURITY CORPORATION AND
SUBSIDIARIES |
|
RECONCILIATION OF NON-GAAP PERFORMANCE MEASURES TO GAAP PERFORMANCE
MEASURES |
|
(in thousands, except earnings per share data) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
September 29, 2019 |
|
September 30, 2018 |
|
|
|
|
|
|
|
Gross profit (GAAP measure) |
$ |
15,886 |
|
$ |
15,183 |
|
Compensation charge, pre-tax |
|
1,366 |
|
|
- |
|
Adjusted gross profit (Non-GAAP measure) |
$ |
17,252 |
|
$ |
15,183 |
|
|
|
|
|
|
|
|
Engineering, selling & administrative |
|
|
|
|
|
|
expenses (GAAP measure) |
$ |
12,954 |
|
$ |
11,031 |
|
Compensation charge, pre-tax |
|
862 |
|
|
- |
|
Adjusted engineering, selling & |
|
|
|
|
|
|
administrative expenses (Non-GAAP measure) |
$ |
12,092 |
|
$ |
11,031 |
|
|
|
|
|
|
|
|
Operating income (GAAP measure) |
$ |
2,932 |
|
$ |
4,152 |
|
Compensation charge, pre-tax |
|
2,228 |
|
|
- |
|
Adjusted operating income (Non-GAAP measure) |
$ |
5,160 |
|
$ |
4,152 |
|
|
|
|
|
|
|
|
Net income (GAAP measure) |
$ |
1,244 |
|
$ |
3,467 |
|
Compensation charge, net of tax |
|
1,704 |
|
|
- |
|
Favorable tax adjustment related to “Tax Reform 2017” |
|
- |
|
|
(372 |
) |
Adjusted net income (Non-GAAP measure) |
$ |
2,948 |
|
$ |
3,095 |
|
|
|
|
|
|
|
|
Diluted earnings per share (GAAP measure) |
$ |
0.33 |
|
$ |
0.93 |
|
Compensation charge, net of tax |
|
0.46 |
|
|
- |
|
Favorable tax adjustment related to “Tax Reform 2017” |
|
- |
|
|
(0.10) |
|
Adjusted diluted earnings per share (Non-GAAP measure) |
$ |
0.79 |
|
$ |
0.83 |
|
|
|
|
|
|
|
|
Frank Krejci, President and CEO commented: “I am pleased
to report that we are making significant progress in our current
capital allocation strategy to strengthen our balance sheet by
paying down debt. Our very strong Net Cash Provided by
Operating Activities this quarter of $15 million was used to reduce
debt by $6 million, which followed $9 million of debt reduction in
fiscal 2019. That is a 29% debt reduction in the last 15
months.
While the non-cash compensation expense charges and UAW/General
Motors strike are having a negative impact in this quarter and the
upcoming quarter, we are pleased with our improving manufacturing
efficiencies, particularly in the ramping up of our Leon, Mexico
facility.”
First QuarterNet sales for the
first quarter ended September 29, 2019 were $120.0 million,
compared to net sales of $117.2 million for the first quarter ended
September 30, 2018. Net income was $1,244,000 (adjusted net
income of $2.9 million) in the current year quarter, compared to
net income of $3.5 million in the prior year quarter. Diluted
earnings per share for the first quarter were $0.33 ($0.79 adjusted
diluted earnings per share) compared to diluted earnings per share
of $0.93 ($0.83 adjusted diluted earnings per share) in the prior
year quarter.
The lower tax provision in the prior year
quarter as compared to the current year quarter was attributed to a
favorable tax adjustment in the prior year period due to the impact
of the new Federal tax law change generally referred to as the “Tax
Cuts and Jobs Act of 2017”, which reduced the income tax provision
by $372,000 and increased diluted earnings per share by $0.10 in
the prior year quarter in comparison to the current 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 29, 2019 |
|
September 30, 2018 |
|
|
|
|
Fiat Chrysler Automobiles |
$ |
25,842 |
|
$ |
30,297 |
General
Motors Company |
33,838 |
|
25,287 |
Ford
Motor Company |
15,812 |
|
15,523 |
Tier 1
Customers |
17,747 |
|
17,816 |
Commercial and Other OEM Customers |
21,346 |
|
20,928 |
Hyundai /
Kia |
5,737 |
|
7,308 |
TOTAL |
$ |
119,962 |
|
$ |
117,159 |
|
|
|
|
|
|
Sales to Fiat Chrysler Automobiles (FCA) in the current year
quarter decreased over the same period in the prior year quarter
due primarily to lower vehicle production volumes on the FCA
minivans for which we supply multiple components. 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 and content on products we supply to
their business. As reported in the first quarter highlights
section, the impact of the General Motors UAW strike impacted net
sales by an estimated $3.0 million in the current year
quarter. Sales to the Ford Motor Company and Tier 1 Customers
were flat in the current year quarter compared to the prior year
quarter. Sales to Commercial and Other OEM Customers during
the current year quarter increased slightly in comparison to the
prior year quarter mainly due to higher sales volumes related to
our Aftermarket business. These customers, along with the
Tier 1 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 decreased sales
to Hyundai / Kia in the current year quarter were principally due
to lower levels of production on the Kia Sedona minivan for which
we supply components.
Adjusted Gross Profit margins improved to 14.3%
in the current year quarter compared to 13.0% in the prior year
quarter primarily due to improvements in operations at our paint
and assembly facility in Leon, Mexico which was partially offset by
the Mexican minimum wage increase that took effect in the beginning
of the calendar year.
Adjusted Engineering, Selling and Administrative
expenses as a percent of net sales in the current year quarter were
10.1% compared to 9.4% in the prior year quarter. The increase in
overall operating expense spending in the current year quarter was
primarily due to new product development costs. During the
current year quarter, we utilized third party vendors for a portion
of our development work, which resulted in higher operating
expenses as compared to the prior year quarter.
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 29, 2019 |
|
September 30,2018 |
Equity Earnings of VAST LLC Joint Venture |
$ |
487 |
|
|
$ |
915 |
|
Equity Earnings (Loss) of
STRATTEC Advanced Logic, LLC |
|
(3 |
) |
|
|
(6 |
) |
Net Foreign Currency
Transaction Gain (Loss) |
20 |
|
|
|
31 |
) |
Other |
|
(117 |
) |
|
|
(214 |
) |
|
$ |
387 |
|
|
$ |
664 |
|
|
|
|
|
|
|
The reduction in equity earnings of VAST LLC in
the current year quarter primarily related to higher development
costs for new programs and the costs incurred by VAST LLC in
connection with breaking ground for the new plant in Jingzhou,
China, which we believe will give VAST added capacity, efficiencies
and a broader geographic footprint in the China market going
forward. Both of these events resulted in lower 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.
Non-GAAP Financial Measures
This press release contains financial measures
not prepared in accordance with generally accepted accounting
principles (referred to as Non-GAAP), specifically “adjusted net
income,” “adjusted gross profit,” “adjusted engineering, selling
& administrative expenses,” “adjusted operating income” and
“adjusted diluted earnings per share.” “Adjusted net income”
is defined as net (loss) income attributable to STRATTEC SECURITY
CORPORATION shareholders excluding the compensation expense
charges, net of tax (i.e., on an after tax basis), and
excluding a favorable tax adjustment relating to “Tax Reform
2017”. “Adjusted diluted earnings per share” is defined as
“Adjusted net income” divided by average diluted shares of common
stock outstanding during the applicable period. “Adjusted
gross profit” is defined as gross profit excluding the compensation
expense charges, all on a pre-tax basis. “Adjusted engineering,
selling & administrative expenses” is defined as engineering,
selling & administrative expenses excluding the compensation
expense charges, all on a pre-tax basis. “Adjusted operating
income” is defined as operating income excluding the compensation
expense charges, all on a pre-tax basis. The Company believes that
these Non-GAAP measures, when presented in conjunction with
comparable GAAP measures, provide additional information for
evaluating STRATTEC’s performance and are important measures by
which STRATTEC’s management is able to assess the profitability and
liquidity of STRATTEC’s business. These Non-GAAP measures should be
considered in addition to, not as a substitute for or superior to,
net income (loss) as a measure of operating performance. These
Non-GAAP measures may be different than Non-GAAP financial measures
used by other companies.
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 customers’ product recall policies, foreign
currency fluctuations, uncertainties stemming from U.S. trade
policies, tariffs and reaction to same from foreign countries and
costs of operations (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.
STRATTEC SECURITY CORPORATION |
Results of Operations |
(In Thousands except per share amounts) |
(Unaudited) |
|
|
|
|
|
First Quarter Ended |
|
|
|
|
|
September 29, 2019 |
|
September 30, 2018 |
|
|
|
|
|
|
|
|
Net Sales |
$ |
119,962 |
|
|
$ |
117,159 |
|
Cost of Goods Sold |
|
104,076 |
|
|
|
101,976 |
|
Gross Profit |
|
15,886 |
|
|
|
15,183 |
|
|
|
|
|
Engineering, Selling & |
|
|
|
Administrative Expenses |
|
12,954 |
|
|
|
11,031 |
|
Income from Operations |
|
2,932 |
|
|
|
4,152 |
|
|
|
|
|
Interest Expense |
|
(340 |
) |
|
|
(407 |
) |
Other Income, Net |
|
387 |
|
|
|
664 |
|
Income before Provision for Income |
|
|
|
Taxes and Non-Controlling Interest |
|
2,979 |
|
|
|
4,409 |
|
|
|
|
|
Provision (Benefit) for Income Taxes |
|
299 |
|
|
|
(20 |
) |
|
|
|
|
Net Income |
|
2,680 |
|
|
|
4,429 |
|
Net Income Attributable |
|
|
|
to Non-Controlling Interest |
|
(1,436 |
) |
|
|
(962 |
) |
|
|
|
|
Net Income Attributable |
|
|
|
to STRATTEC SECURITY CORP. |
$ |
1,244 |
|
|
$ |
3,467 |
|
|
|
|
|
|
|
|
|
Earnings Per Share: |
|
|
|
Basic |
|
0.34 |
|
|
|
0.95 |
|
Diluted |
|
0.33 |
|
|
|
0.93 |
|
Average Basic |
|
|
|
Shares Outstanding |
|
3,710 |
|
|
|
3,652 |
|
|
|
|
|
Average Diluted |
|
|
|
Shares Outstanding |
|
3,728 |
|
|
|
3,711 |
|
|
|
|
|
Other |
|
|
|
Capital Expenditures |
$ |
4,298 |
|
|
$ |
3,969 |
|
Depreciation |
$ |
4,733 |
|
|
$ |
4,047 |
|
|
|
|
|
STRATTEC SECURITY CORPORATION |
Condensed Balance Sheet Data |
(In Thousands) |
|
|
|
|
|
|
|
September 29, 2019 |
|
|
June 30, 2019 |
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
Current Assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
11,241 |
|
|
$ |
7,809 |
|
Receivables, net |
|
78,932 |
|
|
|
84,230 |
|
Inventories, net |
|
51,500 |
|
|
|
47,262 |
|
Other current assets |
|
14,024 |
|
|
|
17,331 |
|
Total Current Assets |
|
155,697 |
|
|
|
156,632 |
|
Investment in Joint Ventures |
|
23,216 |
|
|
|
23,528 |
|
Other Long Term Assets |
|
18,908 |
|
|
|
14,456 |
|
Property, Plant and Equipment, Net |
|
115,978 |
|
|
|
118,120 |
|
|
$ |
313,799 |
|
|
$ |
312,736 |
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
Current Liabilities: |
|
|
|
|
|
Accounts Payable |
$ |
43,996 |
|
|
$ |
41,889 |
|
Other |
|
38,187 |
|
|
|
37,374 |
|
Total Current Liabilities |
|
82,183 |
|
|
|
79,263 |
|
Accrued Pension and Post Retirement Obligations |
|
2,429 |
|
|
|
2,425 |
|
Borrowings Under Credit Facility |
|
36,000 |
|
|
|
42,000 |
|
Other Long-term Liabilities |
|
4,916 |
|
|
|
1,232 |
|
Shareholders’ Equity |
|
319,041 |
|
|
|
317,681 |
|
Accumulated Other Comprehensive Loss |
|
(19,691 |
) |
|
|
(18,568 |
) |
Less: Treasury Stock |
|
(135,711 |
) |
|
|
(135,725 |
) |
Total STRATTEC SECURITY |
|
|
|
|
|
CORPORATION Shareholders’ Equity |
|
163,639 |
|
|
|
163,388 |
|
Non-Controlling Interest |
|
24,632 |
|
|
|
24,428 |
|
Total Shareholders’ Equity |
|
188,271 |
|
|
|
187,816 |
|
|
$ |
313,799 |
|
|
$ |
312,736 |
|
|
|
|
|
|
|
STRATTEC SECURITY CORPORATION |
Condensed Cash Flow Statement Data |
(In Thousands) |
(Unaudited) |
|
|
|
|
|
First Quarter Ended |
|
|
|
|
|
September 29, 2019 |
|
September 30, 2018 |
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
Net Income |
$ |
2,680 |
|
|
$ |
4,429 |
|
Adjustment to Reconcile Net Income to Net |
|
|
|
Cash Provided by Operating Activities: |
|
|
|
Depreciation |
|
4,733 |
|
|
|
4,047 |
|
Equity Earnings in Joint Ventures |
|
(484 |
) |
|
|
(909 |
) |
Foreign Currency Transaction Loss |
|
85 |
|
|
|
428 |
|
Unrealized Gain on Peso Forward Contracts |
|
- |
|
|
|
(225 |
) |
Stock Based Compensation Expense |
|
413 |
|
|
|
385 |
|
Non-cash Compensation Expense |
|
2,228 |
|
|
|
- |
|
Deferred Income Taxes |
|
(524 |
) |
|
|
(372 |
) |
Change in Operating Assets/Liabilities |
|
5,638 |
|
|
|
14 |
|
Other, net |
|
239 |
|
|
|
- |
|
|
|
|
|
Net Cash Provided by Operating Activities |
|
15,008 |
|
|
|
7,797 |
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
Additions to Property, Plant and Equipment |
|
(4,298 |
) |
|
|
(3,969 |
) |
Proceeds
Received on Sale of Property, Plant |
|
|
|
|
|
|
|
and Equipment |
|
15 |
|
|
|
- |
|
Net Cash
Used in Investing Activities |
|
(4,283 |
) |
|
|
(3,969 |
) |
|
|
|
|
Cash Flow
from Financing Activities: |
|
|
|
Borrowings
on Credit Facility |
|
- |
|
|
|
2,000 |
|
Repayment of
Borrowings under Credit Facility |
|
(6,000 |
) |
|
|
(2,000 |
) |
Dividends
Paid to Non-Controlling Interest of Subsidiaries |
|
(980 |
) |
|
|
(784 |
) |
Dividends
Paid |
|
(522 |
) |
|
|
(514 |
) |
Exercise of
Stock Options and Employee |
|
|
|
Stock Purchases |
|
239 |
|
|
|
23 |
|
|
|
|
|
Net Cash
Used In Financing Activities |
|
(7,263 |
) |
|
|
(1,275 |
) |
|
|
|
|
Foreign
Currency Impact on Cash |
|
(30 |
) |
|
|
(298 |
) |
|
|
|
|
Net Increase
in Cash & Cash Equivalents |
|
3,432 |
|
|
|
2,255 |
|
|
|
|
|
Cash and
Cash Equivalents: |
|
|
|
Beginning of
Period |
|
7,809 |
|
|
|
8,090 |
|
End of
Period |
$ |
11,241 |
|
|
$ |
10,345 |
|
|
|
|
|
Contact: Pat HansenSenior Vice President andChief
Financial Officer414-247-3435www.strattec.com
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