Q1 2021 Eastern Co Earnings Call

Good morning, ladies and gentlemen, and welcome to the Eastern company first quarter of fiscal year 2021 earnings event. At this time all participants have been placed on a listen only mode and we will open the floor for your questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Chris Moulton, Sir the floor is yours.

Good morning, and thank you everyone for joining us today speaking today will be eastern's, president and CEO, Gus black as well as our CFO John Sullivan after that we'll open the call for questions.

Please note that some of the information you'll hear during our discussion today will consist of forward looking statements about the company's future financial performance in the business prospects, including without limitation statements regarding revenue gross margin operating expenses other income and 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 the risk factors discussed on 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 eastern performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results with that I'll turn the call over to guidance for opening remarks.

Thanks, Chris and good morning to those of you who have joined us on the phone and those participating via the web.

We released eastern first quarter numbers on our form 10-Q yesterday afternoon on before John Sullivan reviews. The detailed results with you I'd like to take a few moments to reflect on the quarter.

I'm pleased to report that we had a strong start to the year with sales of $73 million that's of high in eastern sort of 163 year history.

Obviously, we benefited from the economic recovery and improvement in demand across the majority of the markets we serve.

We position our portfolio of when these markets because we believe in the underlying demand for gross for the products we make.

That's certainly prove correct in the first quarter demand was strong across a broad range of commercial vehicle markets, including the class a trucks.

Service bodies, the light trucks recreational vehicles.

The vehicle manufacturers and our industrial distribution.

According to Act research class a truck orders in March were 40000 units that's up four fold from March of 2020.

And this March marked the sixth straight month that orders top 40000 units well above the replacement demand, which is roughly around 19000 per month.

Act research expects North American class eight production to be about 302000 units this year and Thats, an increase of 40% over last year.

Also.

Sales of lightweight and mid size structure rebounded in the first quarter. For example force F series sales were up 9% year over year.

Our new mid size truck owners drive demand for many of our components for truck accessories, and total covers and truck apps.

We also delivered margin expansion across many of our businesses.

Our unadjusted net income grew by 8% of grew two 8% in the first quarter of 2021, that's compared to 4% in the prior year and.

And adjusted EBITDA.

<unk> was 12% compared to 10% last year.

This increase partly reflects the changes in our portfolio of businesses, including the contribution of package built mold tooling business on the addition of hailing, which we acquired in <unk>.

August of 2020.

Our margins also benefited from strong organic growth in our core businesses and the impact of of the consolidation of at the heart and Illinois lock.

In the first quarter.

Our business has demonstrated exceptional resilience in the face of significant disruption in our supply chain and increases in raw material prices.

All of our businesses were impacted to varying degrees by the interruption in transportation, causing delays in shipments of finished products and critical components.

Moreover, freight costs.

And prices of certain raw materials, including steel on presence rose throughout the quarter.

And certain location of struggled to find sufficient manpower.

We believe that these trends, including the sustained increases in raw material prices and freight costs may pressure on margins this year, but fortunately many of our businesses have been able to pass some of these cost increases to our customers or have mitigated the impact through advanced buying of primarily steel.

And with that I'll turn the call over to John to go over the details of our financial results.

Thank you guys. This morning, I'll focus on eastern <unk> results for the first quarter of 2021.

For the first quarter of 2021, net sales increased 12% to $73 1 million from $65 3 million a year earlier.

On the segment level basis net sales increased in the engineered solutions segment in the first quarter by 19% to $61 8 million from $51 8 million in the first quarter of 2020 due to increased demand for truck accessory automotive returnable packaging blow mold.

Tooling and distribution products.

Sales of the diversified products segment decreased 16% to of 11 3 million in the first quarter compared to $13 5 million in the first quarter of 2020.

Due to the sale of the Canadian commercial vehicle and assessing the mix come on in June and November 2020, respectively, and lower demand for commercial laundry products, partially offset by increased demand from mining and industrial casting products.

Sales of existing products increased 5% in the first quarter compared to the first quarter of 2020.

Price increases and new product increased net sales by 7% new products included various truck mirror assemblies for compression matches cable luck and mirror cans.

Gross margin as a percentage of sales was 24% in the first quarter compared to 22% in the first quarter of 2020. The increase the gross margin was due impart the higher sales and our success in passing on most of the raw material price increases in many of our businesses.

Product development expenses of $8 million increased $1 million or 8% in the first quarter compared to the first quarter of 2020 as a percentage of net sales product development expenses were one 1% and one 2% for the first quarter of 2021 and 2020, respectively.

Selling and administrative expenses increased 5% in the first quarter compared to the first quarter of 2020, primarily due to the increase amortization expenses related to the Hamlin acquisition in the third quarter of 2020.

An increase of incentive costs.

Which were suspended in the first quarter of 2020 offset by reduced level of.

The reduced levels of travel expenses and related payroll expenses.

Net income for the first quarter was $5 8 million or <unk> 93 per diluted share compared to.

$2 9 million of 46% 46 per diluted share for the first quarter of 2020.

Adjusting for a gain that we realized on the sale of our <unk> hardware facility.

Related to the consolidation of our Illinois, and <unk> businesses net income was 71 cents per diluted share.

EBITDA for the first quarter was approximately $10 6 million. However, adjusting for the gain we realized on the sales of the of 100 hardware facility EBITDA was $8 7 million.

Now for a quick look at our cash flow on balance sheet highlights our cash flow from operations remains strong at two.

$2 1 million for the first quarter, which is an increase of 40% over the first quarter of 2020.

This despite an increase of $4 million on working capital primarily in the accounts receivable due to the increased sales.

As of April three 2021, we had cash and cash equivalents of of $17 5 million on net leverage ratio was two eight times and our fixed coverage ratio is two four times, both of which comfortably compliant with our bank covenants are for the quarter and one of the quarter.

The respectively.

With this I will turn it over to Chris for questions.

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

Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we do ask the while posing your question. Please pickup your handset if you're listening on speaker phone to provide optimal sound quality.

Once again, if you have any questions or comments. Please press star one on your phone please.

Please hold while we poll for questions.

There are no questions in the queue at this time.

Okay. Thank you I'm also not seeing any questions via the webcast so with that I'll turn the call over to Gus for closing remarks.

Thanks, Chris.

And thanks, everyone for joining us this morning.

We're encouraged by the continued acceleration of demand for our products and services across the majority of our businesses the strength in our backlog at the end of fiscal 2020 has continued into 2021.

The value of our backlog of orders at the end of the first quarter was 98 million. That's an increase of 15% were $13 million over the $85 million at the end of fiscal 2020.

I want to highlight that this is.

The companys highest ever level of backlog.

This growth in backlog reflects the continuation and the rebound in demand for truck accessories at the heart of the launch of large new mirror programs for class eight trucks and strong demand for our products and services and our global tooling business.

At this time there are many signs for continued optimism.

Progressed, as we progress into the year, despite lingering supply chain difficulties and co.

Quite extreme raw material price volatility.

Much of this uncertainty and disruption stems directly from the growth in demand and the impact of last year's measures to control the spread of the COVID-19, pandemic, which are still reverberating across the global supply chains.

We remain cautiously optimistic that these issues will abate. However, we're planning for these challenges the linker to varying degrees throughout the remainder of the year.

We believe that our focus on our three core businesses big three precision of.

The heart and fell back we'll continue to translate into material sales earnings and cash flow growth throughout 2021 and beyond.

John described to you our robust balance sheet.

And we are committed to bolster reducing our debt and capturing attractive bolt on.

Bolt on acquisition opportunities to accelerate our growth.

In sum, we remain confident in our goal of becoming a $100 million EBIT of company.

Thank you I'll turn it back over to Chris.

Thanks, Scott with that I'll turn the call back to the operator.

Certainly thank you ladies and gentlemen, this does conclude todays event you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.