Q3 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to the Eastern Companys third quarter fiscal year 2019 earnings conference call. At this time all lines have been placed on they listen only mode. We will take questions. Following the presentation.
Yes, good question throughout our using be asking questions about located under the side.
Good question into the box <unk>.
Requires a lot because.
He's perfectly girl your telephone keypad reach a lot operator at this time. It is my pleasure to try to well over to Chris molten head of corporate development and Investor Relations, Sir the floor is yours.
Thank you good morning, and thank you everyone for joining US speaking today will be Easterns, President and CEO got slack and our CFO John Sullivan after that we'll open the call for questions. Please note that some of the information you will hear during our discussion today will consist of forward looking statements about the company's future financial performance in business prospects.
Including without limitation statements regarding revenue gross margin operating expenses other income expense taxes and business outlook.
These forward looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward looking statements for more information regarding these risks and uncertainties. Please refer to risk factors I discussed in our Form 10-Q filed yesterday I can also on our most recent 10-K that I'll.
<unk> call over to gas for opening remarks.
Thanks, Chris and good morning to those of you will join us on the phone and those participating via the web.
Stark this morning, with an overview of our sales and earnings for third quarter and an update you on our recent acquisition of Bicsthree precision.
I didn't get a leading provider of engineered turnkey packaging to our.
Portfolio businesses was a significant step forward for us.
After that I'll take a few minutes to talk about some of the new products. Our businesses have recently launched together they provide a good illustration of the approach, we're taking to respond to our customers needs.
The new technologies and materials the market any sure vitality of our businesses.
So looking at the financial results net sales for the quarter worst 60.7 million, that's an increase of almost 6% from the 2018 period.
Our approach was led by the industrial hardware segment, which includes one month of Bicsthree precision results.
To offset by some of the softness in several end markets.
In addition, we realized gross through new product launches with class eight truck customers and continued to experience continued strength in commercial transportation markets.
On the bottom line our results were solid with an increase of more than 11% to 67 per diluted share, reflecting both revenue growth.
Our continued focus on productivity and our successful pass through out the record treat tariffs that we paid to the U.S. government into third quarter third quarter earnings also include a onetime nonrecurring transaction costs of approximately $800000 or roughly 13 cents per diluted share.
This double digit increase demonstrates the power of our business model and our focus on investing in areas that offer long term growth opportunities.
Now turning to be Cthree precision as you know during the past several years, we've established a track record of successful acquisitions still the size and strategic significance of this transaction really sets it apart.
I discussed many of those attributes on our conference call in September , but I just want to highlight a few of them again today first we acquired a business that generated approximately $72 million in revenue for the first 12 months ended June Thirtyth 2019.
Second we added scale Nx expanded our presence with several of our key customers in leading nish industrial markets.
Third we took a big step towards our goal of generating 100 million EBITDA number, which we believe reflects our commitment to creating long term shareholder value.
And finally, big three precision offers and especially attractive opportunity for us to create value both through organic growth and through further bolt on acquisitions.
When we announced the acquisition I mentioned that we expected it to be accretive to eastern earnings for fiscal 2020.
Being three performance in the past quarter has reinforced that expectation in fact, we now anticipate not including transaction expenses it'll be accretive to our full year 2019 results.
Over the past few months, we focused on integrating back three athree precision and I'm very happy to say that thought process has been person proceeding very smoothly.
We've met with nearly all the team members at the company's me locations talked about our values expectations and our commitment to the business.
We continue to be impressed with the quality of the company's leadership from workforce as well as the scope and strength of its customer relationships.
We're also very pleased with the way Bicsthree precision has added to our overall backlog, which remains robust through the end of 2019.
Now, let's talk briefly about some of the new products, we launched during the past several months.
As you know one of our principal goals is to provide highly engineered value added solutions.
And in the third quarter, new products grew by 6% that's an important measure of our colony.
To illustrate how we're expanding and enhancing our offerings I'll run through a few examples of products that we've recently launched.
In the third quarter or ever heard manufacturing business launched its new evolution will pay a lot you unlock.
Which is a lighter weight version of our original whale tail latch with a composite cover.
It serves manufacturers of trucks storage and closure products.
For her also secured a new rotary system Fork truck chassis, sparing, which allows for easy easy release, a fairings on the bottom of trailers for repairs and service.
This product will be offered by a leading class eight truck manufacturer starting early next year.
And finally, our Eleanor lock business launched several products, including a new tunnel cover handle which is based on the technology from local law, which we acquired in 2018.
The new handle is easily upgradable from an existing mechanical to an electronic model.
And it's made from an automatic automotive composite that allows for better detailing on a closer matched a truck bodies styling.
In summary, the past quarter was successful for Easter.
In addition to sales and earnings growth, we generated approximately $3.5 million in cash from operations out or adding for her strength to our balance sheet.
Our solid financial results the acquisition of Big three precision and the launch of a range of new products all support our strategy generating positive long term results for our shareholders by continuously optimizing our portfolio of businesses, improving execution and building our balance sheet.
With that was comments I'll turn it over to John to walk us through the results for the quarter. So thank you got.
On a consolidated basis net sales in the third quarter 2019 increased 6% 60.7 million, that's compared to 57.4 million in the third quarter 2080.
The increase in that sense is driven by continued strength in the industrial hardware and metal products segments offset by a decline in net sales in the security product segment.
Total sales volume in the third quarter 2019 decreased by 2% due to a decline in sales volume in the security products segment declined in the recreational vehicle market and the decline in our composite panel business, which more than offset the addition of one month sales related to the acquisition.
Big three precision.
New products contributed 6% to the quarter sales increase.
New product sales included I wouldn't know never a multi tool box latching system for pickup trucks.
Tektronix switch lock a key walk for storage industry canopy lock assembly for vehicles and various in various industrial castings for the agricultural market.
On a segment level basis net sales in the industrial hardware segment increased by 15% in the third quarter 2019, as compared to the net sales in the third quarter 2018, as a result, and strong sales growth in class eight truck distribution and specialty vehicle markets. In addition to the acquisition.
Three precision.
Net sales decreased in the security product segment by 16% in the third quarter 2019, as compared to the net sales into third quarter of 2080.
Sales from the Logan lock business, we acquired in June 2018, partially offset the impact of lower demand for commercial laundry products declined in our point of sale security products, the termination of the supply contract to manufacture.
Then a tronics padlock systems for cellphone towers security axis applications, and the loss of a customer service and recreational vehicle market.
Net sales increased in the middle product segment by 14% in the third quarter 2019, as compared to the net sales in the third quarter 2018, as a result at the 20% increase in sales the mining product customers and an increase of 3% sales to industrial casting come customers compared to the.
Third quarter 2080.
Our consolidated basis gross margin as a percent of sales is 25% in both the third quarter 2019 in the third quarter 2018.
Cost of products sold in the third quarter 2019 increased by 2.6 million or 6% as compared to the third quarter 2018.
Increase in cost of product sold for the third quarter 2019 reflects the mix of the products being sold.
Increased costs due to additional sales volume and cost incurred in producing a new class eight truck mirror that was awarded in 28.
The increase in cost of products sold in the third quarter 2019 was partially offset by declining raw material prices by 13% for hot rolled steel, 3% proposed rules steel, 24% for scrap iron, 5% for copper and 18% for zinc as compared to the third quarter of 28.
We experienced point Ninemillion winter related costs I'm trying to source products in the third quarter of 29 team that were not cost incurred in the prior year period.
The majority of which has been recovered and pricing.
Product development expenses decreased by 1.2 million or 59% in the third quarter 2019, as compared to third quarter 2080, a majority of the decrease relates to the closure of the build back road I acute development operations in the second quarter were 29.
Selling and administrative expenses increased $5.9 million at 12% in the third quarter 2019, compared to the 2018 period, primarily as a result, an increase in payroll and payroll related expenses.
Acquisition expenses are point 8 million, an increased amortization expenses related to the acquisition of big three precision.
Net income for the third quarter 2019 increased 11% to 4.2 million or were 67 cents per diluted share from 3.8 million or 60 cents per diluted share the 2018.
We generated approximately 12.2 million in operating cash flow during the first nine months of 2019 as compared to approximately 7.1 billion. During the same period in 28 team reallocated 9.5 billion of the cash towards the pay down of our long term debt, which 8 billion was on an access.
The rated payment.
We subsequently entered into a new credit arrangement.
That refinance the outstanding 19.1 million in principle and provided 81 million for the acquisition to be three precision during the third quarter 2019.
In 2019, we repatriated point 7 million from our Canadian operations 1.5 million from our Chinese operations point 5 million from our Mexican operations. We subsequently repatriated an additional 1 million from my Chinese operations in the fourth quarter 2019.
Cash flow from operations, coupled with new credit agreement, we are sufficient to acquire big three precision cover related expenses and to fund capital expenditures that service and dividend payments.
In addition to property plants and equipment were approximately 1.9 million for the first nine months of 2019 compared to 4.2 million was a 2018.
As of September 20, 829 team there was approximately point Threemillion and outstanding commitments for capital expenditures I'll turn the call back over to Chris Bert M&A.
Thank you John operator, we'd now like to open the call for questions. If by chance, we have any a telephone participants.
Yes. Thank you well now open for question. If you do have a question. Please press star one way or telephone keypad at this time questions will be taken in the auto dealer, we see if at any time. Your question hasn't Nancy you Karen will get something to keep our Christian once again, ladies and gentlemen, if you do have a question. Please press star one.
Our telephone keypad Uh huh.
While we wait we do have a few questions that have come in via the webcast. So lets tackle those first.
Hi, one theres been commentary lately about the possibility of an economic slowdown I, it's not a recession.
You expect easterns portfolio of businesses to perform under these economic conditions.
Thank you Oh well.
A lot of our product ultimately supports a very wide scope of economic activity, including commercial transportation oil and gas construction.
And of course at the end of the line consumer ultimately it drives drives a lot of fundamental demand.
Given how our products are used and the broad range of markets that we support we're less exposed to any one shock and more impacted by overall economic activity and that would affect our demand.
Having said that we fight hard to grow share launch more competitive products and vigorously control costs in these economic conditions.
We're trying to continue to work hard to deliver earnings growth no matter what conditions, we operated.
All right operator by chance to we have any telephone participants recordings. It doesn't look like we have any questions coming down.
Okay. We do have a couple more questions on the web cast a second question and your September call. You said you expected big three position to be accretive to you to your he asked by at least 40 cents. After fiscal 2020 is that still the case or do you now expected to be even higher.
We do expect the acquisition to be accretive.
220, 20 bps by at least 40 cents and we're confident in that number and we're working hard to try to be done number.
Right. We have another webcasts question, having completed the acquisition at the Big three precision are you planning to target as similarly sized transaction over the next 12 months, where you think it will be better to to Digest Bicsthree I'd before looking for next next acquisition Canada.
So we we believe that increased precision offers an especially attractive opportunity for us to create value both through organic growth.
And through bolt on acquisitions, and that's really where we are currently focusing.
Operator by chance to would have any other questions or on the telephone.
Again, ladies and gentlemen, if you would like asking question. Please press star one on the telephone keypad at this time.
Yeah, we do have another webcast question can we expect that the non recurring expenses, which were 3.8 million.
Well not expand into the fourth quarter.
I have all the write offs when taken or can we expect zero non.
Recurring expenses to be over.
And then the second part what was the reduction in debt in the fourth quarter.
Third quarter I believe its.
Well.
As far as a nonrecurring from the write offs that we incurred in the second quarter in third quarter those are over with and we don't anticipate any further write offs.
There are probably a few board.
Acquisition related expenses sprinkling in line that we expected to come into the fourth quarter, but minimal.
And then reduction debt reduction in the I believe.
Third quarter.
I'm not quite sure what that means I mean, we did pay off debt.
Approximately 9 million.
During the year 8 million was on anything celebrated basis.
And then in the third quarter was the acquisition of.
Rescission, we refinanced our entire debt.
And the paper with acquisition will be 1 million into refinance.
19 million that was standing on their reviews.
Alright.
And then we have another.
Question will be three precision be accretive in the a fourth quarter after expenses.
Yes, it will be a we've been quite determine how much but we believe that is on track to be accretive in the fourth quarter.
We have.
One other question, a which of your companies are you, particularly excited about in terms of future new prospects and new customers.
So we.
Well leave each of our company's has opportunities and as part of our portfolio.
I believe there a couple of companies that are very well positioned and whichever a pretty good lighter sites into opportunities our class eight truck mirror business, it's been growing very rapidly a in the last year and is well positioned to continue to expand its business over the next couple of years.
Even ball that market overall demanded that market is declining we think that business is well positioned to to to grow pretty significantly.
In the foreseeable future. We also think that some other businesses that we've been trying to reposition.
Like Eleanor lock as well is.
Uh huh.
Entering higher growth markets, which we think positions us well for accelerated growth in the future.
Alright.
Operator, do we have any.
Collars your telephone.
Yeah, I know last question.
Okay.
And it looks as though we have no further questions via webcast. So I will turn the call overachieve Gus for closing remarks.
Thanks, Thanks, Chris and thanks, everyone for joining us this morning.
As you've heard we're carefully following our road map to increase shareholder value by optimizing our portfolio of businesses.
Strengthening our execution and keeping our balance sheet strong.
Before wrapping up I Wanna mention that will be participating in the Roth capital is technology and New Industrial conference in New York next Wednesday.
Well issue an advisory announcement with details later today and I look forward to seeing some of you guys there.
Thank you and we hope you will join US again next quarter to review the results of the fourth quarter at fiscal year 2019.
With that operator, we'll now turn the call back to you. Thank you.
Thank you. This concludes today's conference call. We thank you for your participation you may disconnect. Your lines at this time and have a great there.