Q3 2020 Eastern Co Earnings Call
Good day, ladies and gentlemen, and welcome to the Eastern Company third quarter fiscal year 2020 earnings call. All lines have been placed on a listen only mode and the floor will be opened for your questions and comments following the presentation.
If you should require assistance throughout the conference. Please press star zero to reach a live operator.
At this time it is my pleasure to turn the floor over to your host Chris molten head of corporate development, Sir the floor is yours.
Thank you good morning, and thank you everyone for joining us today I speaking today will be Easterns, president and CEO Gsts Flack in 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 and business prospects, including without limitation statements regarding revenue gross margin operating expenses other income and expense taxes and business outlook. Please.
Were looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in each forward looking statements.
These risks include but are not limited to the effects of the COVID-19 pandemic and the measures being taken to limit the spread as koby 19.
For more information regarding these risks and uncertainties. Please refer to risk factors discussed in our form 10-Q filed yesterday.
In addition, during today's call we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of Easterns performance.
Non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.
With that I will turn the call over to gas for opening remarks.
Thanks, Chris.
Hi, good morning to those of you have joined us on the phone and those participating via the web.
We really eastern its third quarter results and a full form 10-Q yesterday afternoon.
I will discuss the quarter this morning.
First.
I would like to take a moment to thank our teams around the world once again for their hard work incredibly incredible resilience and dedication.
During what continues to be a very uncertain time.
Extraordinary people in our factories warehouses and offices continue to demonstrate tremendous commitment to the health and safety of their coworkers.
Doing this by steadfastly, maintaining the safety protocols at work and into our communities.
Moreover.
The agility of our teams and their ability to navigate collaborate and managed successfully through dramatic shifts in our end markets. During this period.
Is a true differentiator for us.
During the third quarter, we took advantage of a strong recovery in many markets following a deep contraction in the second quarter.
And importantly, the quarter demonstrated the positive impact that acquisitions have had on our performance.
This past quarter saw an acceleration of a recovery that began at the end of the second quarter.
I was especially strong with certain of our class eight truck light truck and recreational vehicle customers. That's.
That's all our plastic packaging customers.
In the class eight truck market, our sales rally as a result of the dual impact of increasing demand and a launch of a new mirror programs.
According to STR and industry research organization.
New class eight truck preliminary orders exceeded 30000 in September that's the highest monthly total since October of 2019.
September bookings for heavy duty trucks were also 55% higher than in August.
Class eight truck that orders for the last 12 months now stands at a total 197 units thousands units.
We believe that these green shoots suggest that fleets are feeling more confident and that the economy has entered into a period of normalization.
As for the market for recreational vehicles.
RV, a an industry Association.
Estimates that RV manufacturers shipped 42000 units in September that's an increase of 31% compared with September of last year.
RV shipments are expected to surpass 400000 wholesale units by the end of 2020.
And see continued growth into 2021 to more than 500000 units according to RV I.
Further our precision packaging business has benefited from the rapid growth of personal care and hygiene products and demand for in home foods. That's all it's a shift to online shopping in the third quarter, all boosting demand for plastic packaging.
In keeping with our strategy to optimize our portfolio of businesses.
We made significant progress in this quarter.
First on August six we announced a strategic reorganization of our ever heard manufacturing and let her walk distances.
We're proud of the fact that these two businesses bring a cumulative 230 years of technical sales engineering design and manufacturing experience.
This combination will build a critical mass with our target markets deepen our presence with key customers and it.
Celebrate growth by integrating a complimentary markets and differentiated products into one industry leading business.
Importantly, this reorganization will also allow us to optimize our manufacturing footprint streamline our supply chain and capture synergies across our current operations.
We expect to and we're still on track to complete a combination by the second quarter of 2021.
I believe that the synergies from this combination will contribute significantly to our bottom line and 2021.
Also.
On August 11th we closed on the acquisition appealing RSP.
Yeah like is a Canadian based provider of Blowmolding change parts for the food beverage healthcare and chemical industry.
As mentioned on our prior call.
We were well positioned to leverage our strong cash position and overall stability across our portfolio of businesses to acquire the assets of Haley.
The acquisition of hailing is an important step in expanding their product offerings service capability and geographic reach of our big three precision molds business.
Healings complementary products and capabilities offer significant synergies and can create material incremental value through shared know how and strong relationships across an even broader customer base.
We're especially pleased that tailings highly committed and talented team and it is fully integrated into our operations.
Finally believed that we believe that this acquisition will be accretive to fiscal earnings 2020.
And that's before onetime transaction costs.
Turning to the financial highlights for the quarter.
Net sales climbed to 65.8 million, that's a sequential increase of 35% compared to the second quarter of 2020, and an increase of 8% compared to the third quarter of 2019.
Third quarter 2020 earnings rebounded to 48 cents per diluted share for the second quarter loss of 30 cents per diluted share and more than doubled from the adjusted earnings per diluted share before onetime items in the second quarter of 2020.
Our balance sheet remains strong.
In the third quarter of 2020, we generated $9.3 million in cash from operations base.
Based on our extensive scenario planning, we believe that Easter is balance sheet has ample resources to navigate the current business environment.
As of October 3rd 2020.
Our net leverage ratio is 2.9 times and our fixed charge coverage ratio is 2.2 times.
Both well within our bank covenants, a 4.25 times and 1.25 times respectively.
Although there continues to be uncertainty in the macro environment as a result of the COVID-19, pandemic and a financial impact that measures to respond to it continued to have on Easter we are optimistic that a more sustainable recovery is underway.
We remain confident that as markets strengthen we are well positioned to rebound.
I'll turn it over to John to go over the details of our financial results.
Thank you Gus My remarks. This morning will focus on results for the third quarter of 2020.
For the third quarter 2020, net sales increased 8% to 65.8 million from 60.7 million in the third quarter of 2019.
Excluding big three precision sales in the third quarter would have declined by 5 million or 9%.
To 51 million compared to 56 million in the third quarter of 2019 [noise], but.
Decline in sales in the third quarter of 2020 was primarily due to the divestiture of Canadian commercial vehicle Corporation, which we closed in the second quarter of 2020.
And a continuation of softness across many markets we serve.
Helping to partially offset this weakness we.
We experienced robust sales of military products, which were up 14%.
Off highway products, much walk by 18% and truck and recreational vehicle mirror products, which were up by 18 and 14% respectively.
Sales of existing products increased 3% in the third quarter well.
Our price increases and new products increased net sales by 5%.
New product sales include numerous mirror assemblies pressure.
Russia matches finger pole assemblies by play latches can actually walk assemblies handling assemblies and cross bar lock assemblies.
Okay.
Turning to segment results.
Sales in the industrial hardware segment increased by 20%.
The 47.1 million in the third quarter from 39.4 million in the third quarter of 2019.
Again, excluding victory precision sales in the third quarter of 2020 decreased 7% decrease in sales was primarily due to the divestiture of Canadian commercial vehicle Corporation, which we closed in the second quarter of 2020, and the continued softness in many of our markets.
Sales in the security products segment were 14.2 million in the third quarter comparable sales in the third quarter of 2019.
Yeah with existing products decreased 3.1% or price increases and new product sales contributed 3.2%.
New product sales included a canopy locker subway handle Assembly cross bar Lux simply.
Okay.
Sales in the metal products segment decreased by 37%.
The 4.5 million in the third quarter from 7.1 million in the third quarter of 2019, so that mining products decreased 40% and sale of industrial casting products decreased 36%.
Mining sales in the third quarter were impacted by a combination of the continuation and growing renewable energy capacity extremely low natural gas prices, which led to utilities to cut back on coal usage and cold in 19, which led to numerous mine closures.
However, minds began to reopen in the third quarter and sales of mining products improved 24% from the second quarter of 2020.
Cost of products sold increased 5.3 million or 12% in the third quarter, primarily as a result of the increase in sales from big three precision.
Gross margin as a percent of sales was 22% in the third quarter compared to 25% in the third quarter of 2019.
Product development expenses was comparable.
Third quarter of 2019 at approximately $900000.
And sales selling and administrative expenses increased 1.2 million or 14% in the third quarter compared to the third quarter 2019, primarily result of the inclusion of Bicsthree precision than 2020.
Net income for the third quarter was 3 billion or 48 cents per diluted share compared to net income of 4.2 million or 67 cents per diluted share for the third quarter of 2019.
And now for a quick look at our balance sheet and cash flow highlights.
Cash generated by operating activities was 9.3 million in the third quarter of 2020 compared to 3.8 million generated in the third quarter of 2019.
Capital expenditures was approximately 800000 for the third quarter to 2020 compared to 600000 for the third quarter of 2019 with a balance of approximately 100000 of outstanding commitments.
As of October 3rd 2020, we had total cash and cash equivalents of approximately 19.6 million and total debt of approximately 95 million.
And as best as noted earlier, we are in compliance with all their covenants under the credit agreement at October 3rd 2020, and through the date of funding of our form 10-Q.
I'll now turn the call over to Chris for questions.
Thanks, John operator, I'd like to open the line for questions.
Ladies and gentlemen, the floor is now open for questions. If youd like to ask a question over the phone. Please press star one on your telephone keypad at this time, if you're using a speaker phone well posing your question you pick up your handset to provide the best sound quality.
Ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.
[noise] [noise] there appear to be no questions over the phone at this time.
Okay. We do have one question via webcast.
Do you feel that in 2021 that all divisions can be profitable.
I'll take that thanks, Chris.
We and as you can see from our reporting or the profitability in our metal products business was under pressure a this year because of the decline in mining activity and the impart to lower economic activity and in part due to the natural gas.
Yes prices.
We don't believe that that those two factors will continue to impact our business.
The same degree and we also believe that we are building.
Building momentum in our efforts to diversify that business into the industrial more diversified industrial customer.
Customer base, so as a result.
Yeah, we think that business will continue to will return to its performance that we saw in the prior years.
Okay.
All right I'm, not seeing anything else or via the webcast with that I'll turn the call over to gas for closing remarks.
So thanks, Thanks, Chris.
Throughout the call with 19 pandemic, we remain focused on our key priorities, which we shared with you earlier this year.
These include wanting sure into health and safety of our employees.
To maintaining business continuity financial strength and stability.
And three 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 remain vigilant in our measures to protect them in our factories and our offices. These include among others mandatory map policy misery.
Ms. Your employees' temperatures and enforcement of social distancing.
We are encouraged by the acceleration in demand for our products and services across many of our businesses as well as the impact of our new product launches.
I would just like to reiterate that we are more confident than ever in our strategy to deliver long term shareholder value.
Our businesses are incredibly resilient.
And able to take advantage of rebounding economic activity.
Look it has been an eventful year, so far going to 2020, we did expect some volatility and uncertainty. However, no one could have anticipated the ups and downs and twists and turns that this year would take.
We're still two months to go.
Still it looks like we will end the year stronger and well positioned for 2021.
As always please feel free to reach out to us with any questions that you may have.
Thank you.
Thanks, Scott with that I'll hand, the call back to the operator.
Ladies and gentlemen, this does conclude today's teleconference. We thank you again for your participation you may disconnect. Your lines at this time and have a great day.
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