Q2 2020 Eastern Co Earnings Call

[music].

Please standby we are about to begin.

Good day, ladies and gentlemen, and welcome to your Eastern Company second quarter fiscal years 2020 earnings Conference call.

All lines have been placed in a listen only mode and the more will be open for your questions and comments following the presentation.

If you should require assistance throughout the conference at least five star zero at this time it it's my pleasure to similar over Christmas shopping.

Great development, Sir the floor is yours.

Good morning, and thanks, everyone for joining us today I speaking today will be Easterns, president and CEO Gsts Black 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. These forward looking statements. These risks include but are not limited to Mexico. The 19 can definitely in the magazine taken to limit the spread of Kogut 19.

More information regarding these risks and uncertainties. Please refer to risk factors discussed in our form 10-Q filed yesterday.

Additionally, during today's call will discuss non-GAAP financial measures that we believe are useful supplemental measures of eastern its performance. These non-GAAP measures should be considered in addition to United steps you Werent weren't isolation from GAAP results with that I'll turn the call over I guess for opening remarks.

Thanks, Chris.

Turning to those of you have joined us on the phone and those participating via the web.

We really Easter a second quarter results last week and a full form 10-Q yesterday afternoon.

I'd first like to take a moment to thank our employees around the world once again for their continued hard work.

Incredible resiliency and dedication during what continues to be a very uncertain time.

Extraordinary people that our factories warehouses and into our homes took a leap of faith and trusted that we could operate continuously.

Safely and successfully we're grateful for their continued commitment.

To be sure. We started this quarter with some significant challenges demand for products across nearly all our businesses was severely impacted by the temporary closures of many of our largest customers.

We ended up all the days during richer customer was closed and during which we could not ship products today.

In total slightly more than 80 customers temporarily close their doors and together they were close for more than 110 or 1500 days.

Primarily in April and May of this year.

But the scope.

And speed of our response to these challenges underscores the resilience of our business.

We address the impact of customer focus by pivoting to opportunities for example, being three precision manufacturing frames for emergency hospital beds that were deployed to feel hospitals across the country.

Big three precision also ramped up sales to manufacturers of electric vehicles.

Other customers remain closed.

Our security products segments took advantage of growth in outdoor recreational equipment the market in which we've invested in recent years.

For outdoor recreation products doing during the second quarter as people look for safe activities near all.

For example, domestic cycling sales reached a billion dollars in April of this year, a new record according to NPD.

Similarly, the industrial Harper segment benefited from recent investments in military and government business.

Remained strong throughout the quarter.

At the airport every began to see another bright spot.

Including renewed strength into recreational vehicle markets.

And the return of the class eight truck markets.

According to recent if there's findings 46 million Americans glad to take an RV trip in next 12 months and according to the RV, a and industry Association.

Shipments a motor homes grew from 694 in March to 3000 at 23 in June.

Moreover, as you've seen according to an industry group.

Preliminary North America year over year net class eight truck orders rose, 23% to 16000. She was the first year over year right since January.

At the same time, we responded to the declining demand at the second quarter by significantly reducing our fixed costs, both in our factories and in offices across the company.

We started to implement these measures in late March in early April.

We eliminated all discretionary spending.

Reduced staff in salaries.

<unk> significantly biking, cutting nearly all travel.

Moreover, we carefully match our collection and use of cash did generate 5.9 million in cash from operations this quarter.

In part.

In response to economic conditions, resulting from the Coke Nike pandemic.

We accelerated our work on portfolio optimization.

To ensure that we emerge from the current economic crisis is stronger and more competitive compass.

This work has resulted in four bold actions during the second quarter.

First.

We completed the divestiture of the Canadian commercial vehicle company, that's our Canadian based operation that manufacturer composite cans.

The decision to divest TV reflects our ongoing efforts to streamline our portfolio of businesses.

Second.

We took advantage of her unique opportunity to purchase assets from here like RSV, a Canadian based provider of blow molding and change parts to the food beverage health care and chemical industry.

Aliens business, that's performed remarkably well drive to cope with Nike pandemic.

Those industries. It serves are deemed essential.

Yeah, that's been sensing capabilities are complimentary to our existing bicsthree precision more business.

Offers an opportunity to deepen our relationships with our current customers and drive growth.

Third this quarter, we decided to combine our ever heard manufacturing and Telenor lock is is it into a single company.

The combined company, who build critical mass in our target markets.

Deepen our presence with key customers and accelerate growth by taking advantage of the complementary markets and differentiated products.

Into a single leading.

Business.

The combination will also allow us to optimize our manufacturing footprint.

Streamlined our supply chain and capture synergies across the operations.

We expect a complete this combination by the second quarter of 2021 and believes that the savings from this combination will contribute significantly to our bottom line in 2021.

Jeff Fleming, who today runs the Eleanor lot company will become to managing director of the combined company effective September eight.

And Jim work he.

Really hard today, well become Easter its new Chief operating officer working closely with me.

Finally upon our review.

Our Greenwald industries business.

We determined that as a result of recent industry developments, we needed to write down $4 million a goodwill that was booked in 2000 at the time with the acquisition of this business.

John will tell you more about this later in this call.

Of course, the economic environment remains uncertain as a result of to cope with 19, Pandemics and the financial impact that the measures to respond to that are happening.

We believe that each of these actions will position essentre emerged from the current economic crisis or crisis.

A stronger more competitive and more profitable compass.

Let me not turned to the financial highlights for the quarter.

Net sales in the second quarter over 48.8 million.

Decrease of 21 per cent compared to the second quarter 2019.

Earnings per fully diluted share to second quarter declined to a loss of 30 cents.

As mentioned, we incurred a $4 million goodwill impairment charge related Greenwald industries.

And a onetime restructuring charge of 280000 related to the sale of Canadian commercial vehicles.

Adjusted for these two charges.

Net income per share was 23 cents in the second quarter.

Our balance sheet remains strong.

As mentioned in the second quarter or 2020, we generated $5.9 million in cash from operations.

We grew our free cash balance by 3.5 million to $20 million.

Based on our extensive scenario planning, we believe that Easter has a solid balance sheet.

Ample resources to navigate the current business environment.

As of June 27.

Our current ratio was 3.8 times.

Importantly, our net leverage ratio.

The ratio of debt minus cash to our adjusted EBITDA.

2.9 times.

And our fixed charge coverage ratio.

Which measures our ability to meet fixed charge obligations such as interest expenses.

Just 2.3 times.

Both measures are well within our bank covenants of not more than four point.

Two five times not less than 1.25 times, respectively.

A larger turn the call over to John.

To go over the details of our financial results.

Thank you guys. My remarks. This morning, we'll focus on Houston's results for the second quarter 20 Twond.

The second quarter of 2020, net sales decreased 21% to 48.8.

From 61.4 million in the second quarter 2019.

The decline in sales is primarily due to the ship decisions made by many of our industrial and consumer goods customers to close operations. In addition to a steep decline in demand for mining related products driven by the cold and then.

Net sales of existing products decreased 24% in second quarter compared to the second quarter is 29.

Price increases and new products contributed to a 3% increase in net sales during the second.

New products included numerous numerous and please compression matches, Andrew and senior citizens canopy, and if you'd like to send.

And hospital bed frames for use in field established.

Kobin 19.

Sales in the industrial hardware segment decreased 10% 33.9 million in the second quarter.

To the second quarter 29.

Excluding big three precision.

Do you trees, 42% in the industry segment in the second.

Lower sales were primarily attributable to temporary customer in April and May.

Many of the industrial transportation and consumer discretionary product manufacturers close their facilities for one or more weeks during the quarter.

Sales in the security products segment decreased 33% in the second quarter compared to the second quarter 20.

Well were sales were a tribute to temporary customer books as well as lower demand across the majority of the mark.

Including distribution industrial vehicular accessories and commercial one.

[noise] builds in the middle product segment decreased 48% second quarter.

The second quarter of 29.

Many products decreased 56% and sales of industrial casting products decreased 36% as compared to say or 29.

When sales in the second quarter impacted by a combination of growing renewable energy capacity and extremely low natural gas prices, which led to utilities to cut backs in coal usage. In addition to open 19 would force.

Any momentum.

Tilting in further loss of sale.

Sales of industrial castings in the second quarter also negatively impacted by lots of customer that is temporarily sourced products from us in 2019.

Cost of product sold decreased 8.4 billion or 18% second quarter, primarily the result of reductions sales.

Gross margin as it for since it was 22% in second quarter compared to 24% second quarter 29.

Product development expenses decreased 1.4 million or 65% second quarter compared to say were 29 team.

Reduction this expense relates to the closure of our development operation Bellingham, Washington that took place in second quarter 29.

This was a strategic decisions made in order to adopt.

So from new products, New vision products.

Selling and administrative expenses decreased point 1 million, 1% second quarter compared to the second quarter 2019, however, excluding bicsthree precision selling and administrative expenses decreased 22% in the second quarter compared to the second quarter 29.

Restructuring costs were point 3 million in the second quarter, which related to the divestiture of Canadian commercial vehicle Corporation.

Compared to the restructuring costs of 1.8.

Second quarter 2019.

Related to the discontinuation.

Sure.

And the relocation costs of composite panel technology division themselves very North Carolina to the Canadian commercial vehicle decision.

[noise] goodwill impairment expenses of 4 million.

It was incurred in the second quarter.

The determine.

Not at the estimated fair value.

It was below.

The fair value, we carried on the balance sheet.

The customer of the factors that led to this determination included additional competition industry movement away from our.

Legacy electronic products to new mobile payment.

Net loss for the second quarter was 1.9 million or 30 cents per diluted share.

There are two net income of 2.5 million or 40 cents per diluted share.

Well the second quarter 2019.

Okay.

It was 40 cents for do as compared to second quarter between.

Adjusted for one time expenses net income was 1.4 million or 23 cents per diluted share.

Looking at our balance sheet.

Cash flow highlights has generated by operating activities was 5.9 billion during the second quarter.

To 7.2 million generated during second quarter of 2019.

Capital expenditures was approximately 24 million for the second quarter compared to 25 million for the second were 29.

As of June 27, 2020, it was approximately 2 million of outstanding commitments Okay.

In the later in the current uncertainties, we made the strategic decision limit capital expenditures to those critical for maintenance safety and regulatory projects were 20 point.

As of June 27, 2020, we had a total cash balance of approximately 20 million in total debt of about 96.1 them.

Our loan covenants under our credit agreement requires to maintain senior network coverage.

Ratio.

Not to exceed 4.25 to one in addition, we're required to maintain a fixed charge coverage ratio to be not list in one quarter.

As noted earlier in compliance with all of our covenants under the credit agreement at June 27.

2020 in through the data funding.

Sure.

Turning to do over now to Chris for questions.

Thank you John operator, I'd like to open the line for questions.

Thank you that's what is now open for questions.

Submit your questions over the phone or through the Webinars. Please press star one on your phone now ask a question.

Or submit your question through the web.

Again, ladies and gentlemen press star one on your telethon ask a question verbally.

And I'm not I'm showing no questions from the phone lines at this time.

Right and I'm, not seeing anything as well through the web cast so with that.

I'll turn the call Abrogates for closing remarks.

Thank you Chris.

We'd like to Ah that's throughout this crisis Weve remained focused on our key covert 19 pandemic priorities, which you should check with you earlier this year.

Sure Good health and safety of our employees.

And maintaining business continuity.

Make sure that's financial strength and stability.

All while we're doing our part to help mitigate the impact of this virus.

Our number one priority has been and continues to be the health and safety of our employees.

We continue to take significant measures to protect our employees in our factories and our offices.

We established a mandatory map policy or taking people's temperature and a four socialist sensing by modifying our facilities and production lines or necessary.

We believe the focus on the health and safety of our employees has enabled us.

To regain stability in our business.

We are clearly seeing bright spots, but we must remain vigilant and closely monitor conditions and developments across our businesses with our customers and our supply chain.

That said I must say that we're more confident than ever in our strategy to deliver significant long term shareholder value.

Our businesses are resilient.

And our increasingly well positioned to execute an economic activity rebalance.

As I mentioned in our earnings release.

Once conditions normalize understanding that it could take some time given the uncertain nature of the Coca 19 pandemic.

We believe that our earnings power will be robust.

I believe the pro forma earnings per share $3, a nine cents, which we shared at the time of our acquisition of Big three precision remains appropriate for our company.

Yeah actions that we've taken recently so we will continue to take should strengthen our earnings power going forward.

As always.

Please feel free to reach actress with any questions you may have.

Thank you.

Thanks, Scott I would that I'll hand, the call back to the operator.

Thank you if that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and have a great.

[music].