The Eastern Company Reports an 11.3% Increase in Third Quarter 2019 Earnings to $0.67 Per Share, and a 5.8% Increase in Sales to $60.7 Million

Big 3 Precision Expected to Be Accretive to Full-Year EPS Before Transaction Expenses

NAUGATUCK, Conn.--()--The Eastern Company (“Eastern”) (NASDAQ:EML), an industrial manufacturer of unique engineered solutions serving niche industrial markets, today announced the results of operations for the third quarter ended September 28, 2019.

President and CEO August Vlak said, “Eastern delivered strong results reflecting the strength of our diverse portfolio of leading niche industrial businesses and our focus on growing the operational performance of our businesses. Success of new product launches and continued strength in commercial transportation markets also contributed to our sales growth for the quarter. From a segment perspective, third-quarter sales growth was led by our Industrial Hardware Segment, which included one month of Big 3 Precision, a leading provider of engineered turnkey packaging. We acquired Big 3 Precision on August 30, 2019.

“Sales gains and improved operating profitability resulted in an 11.3% increase in earnings to $0.67 per diluted share in the third quarter of 2019, compared to earnings per diluted share of $0.60 in the third quarter of 2018.

“Our backlog grew significantly as a result of the acquisition of Big 3 Precision and remains robust through the end of the year. We anticipate continued strong performance of our businesses as a result of planned new product launches, which reflect our focus on highly engineered, value-added products. In addition, Big 3 Precision’s robust operating results support our conviction that the business will be a significant contributor to our top line, earnings growth and cash flow in 2019. We expect the acquisition to be accretive to our full-year results before transaction expenses.”

Mr. Vlak concluded, “Our acquisition of Big 3 Precision is an important step toward our long-term goal of building a larger and stronger company with a significant presence with key customers and $100 million in EBITDA. We remain confident that our strategy of continually optimizing Eastern’s portfolio of businesses, improving execution, and ensuring a solid and flexible balance sheet will generate positive long-term results for our shareholders.”

Third Quarter 2019 Financial Results

Net sales for the third quarter 2019 were $60.7 million compared to $57.4 million for the same period in 2018, an increase of 5.8%. Strong sales growth in our Industrial Hardware Segment was partly offset by a decline in our Security Products Segment. Gross margin was 25% in both the third quarter of 2019 and the third quarter of 2018. Product development expenses decreased $1.2 million, or 59%, in the third quarter of 2019 as compared to the prior year period, primarily as the result of our decision to close the Velvac Road IQ development operations and adopt a leaner approach to the development of new vision products. Selling and administration expenses increased $0.9 million, or 12%, in the third quarter of 2019 compared to the prior year period, including approximately $0.8 million of one-time transaction expenses related to the acquisition of Big 3 Precision.

Net income for the third quarter of 2019 was $4.2 million, or $0.67 per diluted share, compared to $3.8 million, or $0.60 per diluted share, for the prior year period, an increase of 11.3%.

In the Industrial Hardware Segment, sales in the third quarter 2019 rose 15% to $39.4 million compared to the same period in 2018. Results for the third quarter 2019 include the addition of Big 3 Precision after August 30, 2019. Operating income for the third quarter of 2019 was $3.4 million for an operating profit margin of 9% as compared to $1.8 million for an operating profit margin of 5% for the same period last year, reflecting the impact of operating improvements and cost management, partly offset by short-term costs related to a Class 8 truck mirror program awarded in late 2018.

In the Security Products Segment, sales for the third quarter 2019 declined by 16% to $14.2 million, compared to the same period in 2018. Sales from the Load N Lock business which was acquired in June 2018 partially offset the impact of lower demand for commercial laundry products, a decline in security products for point-of-sale and retail applications, and the termination of a supply contract for mechatronic padlock systems in the second quarter of 2019. Operating income for the Security Products Segment was $1.8 million for the third quarter of 2019, a 27% decline compared to the same period in 2018.

In the Metal Products Segment, sales rose 14% for the third quarter of 2019 compared to the same period in 2018. Operating income was $0.5 million for the third quarter of 2019, 7.3% higher than the same period in 2018.

Nine Month 2019 Financial Results

Net sales for the first nine months of 2019 were $183.0 million compared to $177.7 million in the first nine months of 2018, an increase of 3%, which includes one month of impact from the acquisition of Big 3 Precision. Net income for the first nine months of 2019 was $8.3 million, or $1.33 per diluted share, compared to $10.1 million, or $1.61 per diluted share for the first nine months of 2018, a decrease of 18% from the prior-year period. Net income for the first nine months of 2019 includes $2.6 million of one-time restructuring costs associated with the closure of the Velvac Road IQ development operations, the consolidation of Eastern’s Composite Panel Technologies facility, and $1.2 million of one-time, non-tax deductible transaction expenses related to the acquisition of Big 3 Precision. Together, non-recurring expenses in the first nine months of 2019 equaled $3.8 million, or $0.51 per diluted share.

Conference Call and Webcast

The Eastern Company will host a conference call to discuss its results for the third quarter of 2019 and other matters on Friday, November 8, 2019 at 9:00 Eastern Time. Participants can access the conference call by phone at (888) 669-0687 (toll free in US & Canada) or (862) 298-0702 (international). Participants can also join via the web at https://www.webcaster4.com/Webcast/Page/1757/32067.

About The Eastern Company

The Eastern Company manages industrial businesses that design, manufacture and sell unique engineered solutions to niche markets, focusing on industries that offer long-term macroeconomic growth opportunities The Company operates in three business segments -- Industrial Hardware, Security Products and Metal Products -- from 18 locations in the U.S., Canada, Mexico, U.K., Taiwan and China.

Safe Harbor for Forward-Looking Statements

Statements in this document about our future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the rules, regulations and releases of the Securities and Exchange Commission. Any statements that are not statements of historical fact, including statements containing the words "believes," "intends", "continues," "reflects," "plans," "anticipates," "expects," and similar expressions, should also be considered to be forward-looking statements. Readers should not place undue reliance on these forward-looking statements, which are based upon management's current beliefs and expectations. These forward-looking statements are subject to risks and uncertainties, and actual results might differ materially from those discussed in, or implied by, the forward-looking statements. Among the risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements include, but are not limited to changing customer preferences, lack of success of new products, loss of customers, cybersecurity breaches, changes in competition in our markets, and increased prices for raw materials resulting from tariffs on imported goods or otherwise. There are important, additional factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including those set forth in our reports and filings with the Securities and Exchange Commission. We undertake no obligation to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise.

THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 28,
2019

 

 

 

September 29,
2018

 

 

 

September 28,
2019

 

 

 

September 29,
2018

 

Net sales

 

$

60,692,645

 

$

57,357,442

 

$

183,015,723

 

$

177,663,291

 

Cost of products sold

 

 

(45,754,911

)

 

(43,139,780

)

 

(139,243,164

)

 

(133,670,797

)

Gross margin

 

 

14,937,734

 

 

14,217,662

 

 

43,772,559

 

 

43,992,494

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product development expenses

 

 

(825,425

)

 

(2,004,919

)

 

(5,240,004

)

 

(5,089,178

)

Selling and administrative expenses

 

 

(8,391,898

)

 

(7,472,335

)

 

(24,866,665

)

 

(25,602,515

)

Restructuring costs

 

 

 

 

 

 

(2,651,877

)

 

 

Operating profit

 

 

5,720,411

 

 

4,740,408

 

 

11,014,013

 

 

13,300,801

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(420,377

)

 

(310,507

)

 

(974,536

)

 

(918,897

)

Other income

 

 

188,623

 

 

228,787

 

 

789,371

 

 

673,287

 

Income before income taxes

 

 

5,488,657

 

 

4,658,688

 

 

10,828,848

 

 

13,055,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

1,295,575

 

 

892,027

 

 

2,535,033

 

 

2,929,858

 

Net income

 

$

4,193,082

 

$

3,766,661

 

$

8,293,815

 

$

10,125,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

.67

 

$

.60

 

$

1.33

 

$

1.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

.67

 

$

.60

 

$

1.33

 

$

1.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends per share:

 

$

.11

 

$

.11

 

$

.33

 

$

.33

 

 

See accompanying notes in the Company’s third quarter 2019 form 10-Q.

THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 

ASSETS

 

September 28,
2019

 

December 29,
2018

 

 

 

(Unaudited)

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,983,329

 

$

13,925,765

 

Marketable securities

 

 

33,759

 

 

 

Accounts receivable, less allowances: $546,000 - 2019; $680,000 -2018

 

 

43,536,854

 

 

30,285,316

 

Inventories

 

 

52,761,230

 

 

52,773,209

 

Prepaid expenses and other assets

 

 

4,421,384

 

 

3,071,888

 

Refundable taxes

 

 

1,081,011

 

 

1,133,847

 

Total Current Assets

 

 

113,817,567

 

 

101,190,025

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment

 

 

87,406,814

 

 

73,768,615

 

Accumulated depreciation

 

 

(46,563,361

)

 

(43,915,238

)

 

 

 

40,843,453

 

 

29,853,377

 

 

 

 

 

 

 

 

 

Goodwill

 

 

78,965,485

 

 

34,840,376

 

Trademarks

 

 

5,479,063

 

 

3,686,063

 

Patents and other intangibles net of accumulated amortization

 

 

28,454,738

 

 

10,281,720

 

Right of Use Assets

 

 

10,280,814

 

 

 

Deferred income taxes

 

 

1,396,006

 

 

1,396,006

 

 

 

 

124,576,106

 

 

50,204,165

 

TOTAL ASSETS

 

$

279,237,125

 

$

181,247,567

 

THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

September 28,
2019

 

December 29,
2018

 

 

 

(Unaudited)

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

20,457,928

 

$

18,497,626

 

Accrued compensation

 

 

3,579,677

 

 

4,159,808

 

Other accrued expenses

 

 

6,134,991

 

 

3,095,666

 

Contingent liability

 

 

 

 

2,070,000

 

Current portion of long-term debt

 

 

5,187,689

 

 

2,325,000

 

Total Current Liabilities

 

 

35,360,285

 

 

30,148,100

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

8,630,744

 

 

1,516,012

 

Other long-term liabilities

 

 

1,703,535

 

 

353,856

 

Lease Liability

 

 

10,280,814

 

 

 

Long-term debt, less current portion

 

 

94,852,921

 

 

26,350,000

 

Accrued postretirement benefits

 

 

326,489

 

 

648,635

 

Accrued pension cost

 

 

24,470,438

 

 

25,362,325

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

Preferred Stock, no par value:

 

 

 

 

 

 

 

Authorized and unissued: 2,000,000 shares

 

 

 

 

 

 

 

Common Stock, no par value, Authorized: 50,000,000 shares

 

 

30,440,228

 

 

29,994,890

 

Issued: 8,973,046 shares in 2019 and 8,965,987 shares in 2018

 

 

 

 

 

 

 

Outstanding: 6,238,317 in 2019 and 6,257,588 in 2018

 

 

 

 

 

 

 

Treasury Stock: 2,734,729 shares in 2019 and 2,634,729 shares in 2018

 

 

(20,169,098

)

 

(20,169,098

)

Retained earnings

 

 

115,906,469

 

 

109,671,362

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

Foreign currency translation

 

 

(2,452,986

)

 

(2,106,329

)

Unrealized loss on marketable securities, net of tax

 

 

(882

)

 

 

Unrealized gain (loss) on interest rate swap, net of tax

 

 

(104,422

)

 

166,444

 

Unrecognized net pension and postretirement benefit costs, net of tax

 

 

(20,007,409

)

 

(20,688,630

)

Accumulated other comprehensive loss

 

 

(22,565,699

)

 

(22,628,515

)

Total Shareholders’ Equity

 

 

103,611,900

 

 

96,868,639

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

279,237,125

 

$

181,247,567

 

 

See accompanying notes in the Company’s third quarter 2019 form 10-Q.

 

Contacts

The Eastern Company
August Vlak or John L. Sullivan III
203-729-2255

LHA Investor Relations
Jody Burfening
212.838.3777
JBurfening@lhai.com

Contacts

The Eastern Company
August Vlak or John L. Sullivan III
203-729-2255

LHA Investor Relations
Jody Burfening
212.838.3777
JBurfening@lhai.com