STRATTEC SECURITY CORPORATION Reports Fiscal 2020 Third Quarter Operating Results

Nachrichtenquelle: globenewswire
23.04.2020, 22:00  |  116   |   |   

MILWAUKEE, April 23, 2020 (GLOBE NEWSWIRE) -- STRATTEC SECURITY CORPORATION (NASDAQ:STRT) today reported operating results for the fiscal third quarter ended March 29, 2020.

Net sales for the Company’s third quarter ended March 29, 2020 were $116.9 million, compared to net sales of $128.2 million for the third quarter ended March 31, 2019. Net income for the current year quarterly period was $3.0 million, compared to net income of $1.7 million in the prior year quarter. Diluted earnings per share for the current year quarterly period were $0.79 compared to diluted earnings per share of $0.46 in the prior year quarter.

GAAP Earnings
For the nine months ended March 29, 2020, the Company’s net sales were $343.2 million compared to net sales of $358.3 million in the prior year nine month period. Net income during the current year nine month period was $2.9 million compared to a net loss of $17.0 million in the prior year nine month period. Diluted earnings per share were $0.77 for the nine month period ended March 29, 2020 compared to diluted loss per share of $4.62 during the nine month period ended March 31, 2019.

Non-GAAP Earnings
During the first nine months of the fiscal year 2020 ended March 29, 2020, a pre-tax non-cash compensation expense charge, occurring during the first and second quarter of fiscal 2020, of $4.5 million reduced the Company’s diluted earnings per share by $0.91 or $3.4 million, on an after tax basis. Without this non-cash compensation expense charge adjusted diluted earnings per share for the current year nine months ended March 29, 2020 would have been $1.68.

As noted in prior Company filings with the SEC, during the fiscal 2019 second quarter ended December 30, 2018, the Company completed a substantial portion of terminating the STRATTEC Pension Plan that was previously frozen on December 31, 2009. As a result of those actions, a non-cash pre-tax pension settlement charge of $32.4 million was recorded during our second quarter ended December 30, 2018 that reduced diluted earnings per share by $6.73, or $24.8 million, on an after tax basis. Without this pension settlement charge and favorable tax adjustment related to Tax Reform adjusted diluted earnings per share for the prior year nine months ended March 31, 2019 would have been $2.01.

For further information on adjusted or non-GAAP numbers included in this release, see the Non-GAAP to GAAP reconciliation tables, along with the explanatory note following the table, included later on in this release.

Net sales to each of our customers or customer groups in the current year quarter and prior year quarter were as follows (in thousands):

    Three Months Ended
    March 29, 2020     March 31, 2019
           
Fiat Chrysler Automobiles $ 26,050   $ 29,917
General Motors Company   31,656     30,969
Ford Motor Company   15,462     15,942
Tier 1 Customers   17,495     20,078
Commercial and Other OEM Customers   20,184     22,794
Hyundai / Kia   6,091     8,530
TOTAL $ 116,938   $ 128,230

During the latter part of March 2020 our OEM customers started reducing production schedules and closed their assembly plants due to the Coronavirus (COVID-19) pandemic. The impact of these reductions reduced our net sales in the current year quarter by approximately $6.7 million dollars. Sales to Fiat Chrysler Automobiles in the current year quarter decreased in comparison to the prior year quarter due to lower production volumes of the vehicles we supply. The increase in sales to General Motors Company in the current year quarter compared to the prior year quarter related primarily to higher sales content on models for which we supply components, in particular power access products and latches. Sales to Ford Motor Company decreased in the current year quarter due to lower production volumes of the vehicles we supply compared to the prior year quarter. Sales to Tier 1 Customers decreased in the current year quarter due to lower sales of our driver control steering column lock products. Sales to Commercial and Other OEM Customers during the current year quarter decreased in comparison to the prior year quarter mainly due to decreases in sales related to key fobs sold to Harley Davidson and related to reductions in sales of door handle and power access products to Honda of America Manufacturing, Inc.. These Commercial and Other OEM Customers, along with the Tier 1 Customers, primarily represent purchasers of vehicle access control products, such as latches, key fobs, driver controls, steering column locks 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 of the Kia Sedona minivan for which we supply primarily power sliding door components.

Gross profit margins were 14.5 percent in the current year quarter compared to 12.2 percent in the prior year quarter. The increase in gross profit margin in the current year quarter compared to the prior year quarter was primarily attributed to improved manufacturing efficiencies both at our Milwaukee and Mexico production facilities in comparison to the prior year quarter.

Engineering, Selling and Administrative expenses overall were lower in the current year quarter as compared to the prior year quarter and represented 9.2 percent in the current year quarter as a percent of net sales compared to 9.1 percent in the prior year quarter. The decrease in overall operating expenses in the current year quarter was primarily due to lower outside expenditures on new product development costs associated with utilizing third party vendors for a portion of our development work.

Included in Other Income, Net in the current year quarter compared to the prior year quarter were the following items (in thousands of dollars):

     March 29, 2020      March 31, 2019   
             
(Loss) Equity Earnings of VAST LLC Joint Venture $ (947 )   $ 25  
Net Foreign Currency Realized and            
Unrealized Transaction Gain (Loss)   1,467        (47 )
Other   (392 )     297  
  $ 128     $ 275  

The decrease in Other Income, Net in the current year quarter from the prior year quarter was primarily related to lower profitability at our VAST LLC China operation due to extended OEM customer plant shutdowns associated with the coronavirus (COVID-19) pandemic.

Frank Krejci, President & CEO commented: “I am pleased with the current quarter’s operating results especially since our customer’s started closing their assembly plants at the end of March due to the COVID-19 virus. Despite those closures reducing our net sales by approximately $6.7 million, the significant manufacturing improvements and cost reduction activities at both our Milwaukee and Mexico production facilities improved gross profit margins by over 2% in comparison to the prior year quarter. Our VAST LLC operations experienced a net loss during the current quarter mainly due to VAST China which was down almost the entire month of February related to the COVID-19 virus. However, near the end of March they were almost back to full operations. The coming quarter will be severely impacted by our OEM customers shutting down their North America operations for the entire month of April. Depending on how long the COVID-19 virus will require the industry to remain to be idle, our net sales for next quarter could be down 50% or more, thus dramatically impacting profitability and operating cash flow. We are presently reducing our cost structure through layoffs, reduced hours, officer salary cuts and escalating decisions regarding capital spending. Hopefully this is the worst and the automotive industry can get on a path of recovery during this coming quarter. Lastly, I would like to end on a very positive perspective. In December 2018, we transferred our pension plan liability to an insurance company and had excess assets left over. If we had not, given the current situation, we would be millions of dollars underfunded and be facing significant contributions for years to come. Between paying down debt and eliminating our former pension liability, we are in a much stronger position to weather this storm and ultimately invest in our future”.

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    Nine Months Ended
    March 29, 2020     March 31, 2019     March 29, 2020     March 31, 2019
                       
Gross profit (GAAP measure) $ 17,010   $ 15,682   $ 43,229   $ 43,601  
Compensation charge, pre-tax   -     -      2,742     -  
Adjusted gross profit                      
(Non-GAAP measure) $ 17,010   $ 15,682   $ 45,971   $ 43,601  
                       
Engineering, selling & administrative                      
expenses (GAAP measure) $ 10,727   $ 11,721   $ 35,775   $ 33,222  
Compensation charge, pre-tax   -     -     1,731     -  
Adjusted engineering, selling &                      
administrative expenses                      
(Non-GAAP measure) $ 10,727   $ 11,721   $ 34,044   $ 33,222  
                       
Operating income                      
(GAAP measure) $ 6,283   $ 3,961   $ 7,454   $ 10,379  
Compensation charge, pre-tax    -     -     4,473      -  
Adjusted operating income                      
(Non-GAAP measure) $ 6,283   $ 3,961   $ 11,927   $ 10,379  
                       
Net income (loss) (GAAP measure) $ 2,994   $ 1,730   $ 2,897   $ (16,967 )
Compensation charge, net of tax   -     -     3,422      -  
Pension settlement charge, net of tax   -     -     -     24,812  
Favorable tax adjustment related to                      
“Tax Reform 2017”   -     -     -     (372 )
Adjusted net income                      
(Non-GAAP measure) $ 2,994   $ 1,730   $ 6,319   $ 7,473  
                       
Diluted loss per share                      
(GAAP measure) $ 0.79   $ 0.46   $ 0.77   $ (4.62 )
Compensation charge, net of tax   -     -     0.91      -  
Pension settlement charge, net of tax   -     -     -     6.73  
Favorable tax adjustment related to                      
“Tax Reform 2017”   -     -     -     (0.10 )
Adjusted diluted earnings per share                      
(Non-GAAP measure) $ 0.79   $ 0.46   $ 1.68   $ 2.01  

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 both the pension settlement charges and the compensation expense charges, in each case 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 customer product recall policies, work stoppages at the Company or at the location of its key customers as a result of labor disputes, foreign currency fluctuations, uncertainties stemming from U.S. trade policies, tariffs and reactions to same from foreign countries, the volume and scope of product returns, adverse business and operational issues resulting from the coronavirus pandemic, and fluctuations in our costs of operation (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.

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

STRATTEC SECURITY CORPORATION
Condensed Results of Operations
(In Thousands except per share amounts)
(Unaudited)
                         
  Third Quarter Ended
  Nine Months Ended
                         
    March 29, 2020     March 31, 2019      March 29, 2020        March 31, 2019
                         
Net Sales $ 116,938     $ 128,230     $ 343,183     $ 358,302  
                           
Cost of Goods Sold   99,928       112,548        299,954        314,701  
                           
Gross Profit   17,010       15,682        43,229        43,601  
                           
Engineering, Selling &                          
Administrative Expenses   10,727       11,721        35,775        33,222  
                           
Income from Operations   6,283       3,961        7,454        10,379  
                           
Interest Expense   (204 )     (413 )      (792 )      (1,224 )
                           
Pension Termination                          
Settlement Charge   -       -        -        (32,434 )
                           
Other Income, Net   128       275        1,030        2,153  
                           
Income (Loss) before Provision                          
(Benefit) for Income Taxes                          
and Non-Controlling Interest   6,207       3,823        7,692        (21,126 )
                           
Provision (Benefit) for Income Taxes   1,294       786        1,194        (6,994 )
                           
Net Income (Loss)   4,913       3,037        6,498        (14,132 )
                           
Net Income Attributable to                          
Non-Controlling Interest   (1,919 )     (1,307 )      (3,601 )      (2,835 )
                           
Net Income (Loss) Attributable to                          
STRATTEC SECURITY                          
CORPORATION $ 2,994     $ 1,730     $ 2,897     $ (16,967 )
                           
Earnings (Loss) Per Share:                          
Basic $ 0.80     $ 0.47     $ 0.78     $ (4.62 )
Diluted $ 0.79     $ 0.46     $ 0.77     $ (4.62 )
Average Basic                          
Shares Outstanding   3,748       3,684        3,733        3,670  
                           
Average Diluted                          
Shares Outstanding   3,768       3,728        3,752        3,670  
                           
Other                          
Capital Expenditures $ 2,923     $ 4,148     $ 10,307     $ 13,550  
Depreciation $ 4,769     $ 4,420     $ 14,349     $ 12,543  



STRATTEC SECURITY CORPORATION 
               
Condensed Balance Sheet Data 
(In Thousands) 
               
               
  March 29, 2020   June 30, 2019
    (Unaudited)          
ASSETS              
Current Assets:              
Cash and cash equivalents $ 10,173     $ 7,809  
Receivables, net   72,805       84,230  
Inventories, net   58,348       47,262  
Other current assets   15,216       17,331  
Total Current Assets   156,542       156,632  
Investment in Joint Ventures   23,190       23,528  
Other Long Term Assets   10,363       14,456  
Property, Plant and Equipment, Net   107,416       118,120  
  $ 297,511     $ 312,736  
               
LIABILITIES AND SHAREHOLDERS’ EQUITY              
Current Liabilities:              
Accounts Payable $ 43,104     $ 41,889  
Other   32,968       37,374  
Total Current Liabilities   76,072       79,263  
Accrued Pension and Post Retirement Obligations   2,403       2,425  
Borrowings Under Credit Facility   27,000       42,000  
Other Long-term Liabilities   4,781       1,232  
Shareholders’ Equity   320,289       317,681  
Accumulated Other Comprehensive Loss   (22,270 )     (18,568 )
Less: Treasury Stock   (135,676 )     (135,725 )
Total STRATTEC SECURITY              
CORPORATION Shareholders’ Equity   162,343       163,388  
Non-Controlling Interest   24,912       24,428  
Total Shareholders’ Equity   187,255       187,816  
  $ 297,511     $ 312,736  



STRATTEC SECURITY CORPORATION
Condensed Cash Flow Statement Data
(In Thousands)
(Unaudited)
         
  Third Quarter Ended   Nine Months Ended 
                               
    March 29, 2020       March 31, 2019       March 29, 2020     March 31, 2019
         
Cash Flows from Operating Activities:        
Net Income (Loss) $ 4,913     $ 3,037     $ 6,498     $ (14,132 )
Adjustment to Reconcile Net Income (Loss) to        
Cash Provided by Operating Activities:        
Equity Loss (Earnings) in Joint Ventures   921       (66 )     (55 )     (2,451 )
Depreciation   4,769       4,420       14,349       12,543  
Foreign Currency Transaction (Gain) Loss   (2,515 )     192       (2,067 )     261  
Unrealized Loss (Gain) on Peso        
Forward Contracts   1,048       (23 )     1,048       (116 )
Stock Based Compensation Expense   165       241       789       867  
Non-Cash Compensation Expense   -       -       4,473       -  
Pension Settlement Charge   -       -       -       32,434  
Deferred Income taxes   -       -       (1,032 )     (8,131 )
Change in Operating Assets/Liabilities   (1,266 )     (2,805 )     4,212       3,727  
Other, net   94       3       522       (281 )
         
Net Cash Provided by Operating Activities   8,129       4,999       28,737       24,721  
         
Cash Flows from Investing Activities:        
Investment in Joint Ventures   -       (200 )     -       (200 )
Additions to Property, Plant and Equipment   (2,923 )     (4,148 )     (10,307 )     (13,550 )
Proceeds from Sale of Property, Plant        
and Equipment   14       -       29       12  
Net Cash Used in Investing Activities   (2,909 )     (4,348 )     (10,278 )     (13,738 )
         
Cash Flows from Financing Activities:        
Borrowings Under Credit Facility   -       -       -       2,000  
Repayment of Borrowings Under Credit Facility   (5,000 )     (2,000 )     (15,000 )     (9,000 )
Dividends Paid to Non-Controlling        
Interests of Subsidiaries   -       (400 )     (980 )     (1,384 )
Dividends Paid   (525 )     (517 )     (1,572 )     (1,546 )
Exercise of Stock Options and        
Employee Stock Purchases   24       172       543       244  
                               
Net Cash Used In Financing Activities   (5,501 )     (2,745 )     (17,009 )     (9,686 )
         
Effect of Foreign Currency Fluctuations on Cash   1,169       (77 )     914       (185 )
         
Net Increase (Decrease) in Cash & Cash Equivalents   888       (2,171 )     2,364       1,112  
         
Cash and Cash Equivalents:        
Beginning of Period   9,285       11,373       7,809       8,090  
End of Period $ 10,173     $ 9,202     $ 10,173     $ 9,202  
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