MILWAUKEE, Wis. , Oct. 24, 2019 (GLOBE NEWSWIRE) -- 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 Quarter
Net 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 Company33,838 25,287
Ford Motor Company15,812 15,523
Tier 1 Customers17,747 17,816
Commercial and Other OEM Customers21,346 20,928
Hyundai / Kia5,737 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 
    

 

Pat Hansen
Senior Vice President and
Chief Financial Officer
414-247-3435
www.strattec.com