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8-K - PRIMARY DOCUMENT - EASTERN CO | eml-20211231.htm |
Exhibit 99.1
FOR
IMMEDIATE RELEASE
April
28, 2021
THE
EASTERN COMPANY REPORTS FIRST QUARTER 2021 RESULTS
NET
SALES INCREASE 12% TO A NEW RECORD $73.1 MILLION; FIRST QUARTER
2021
EARNINGS
MORE THAN DOUBLED TO $0.93 PER DILUTED SHARE
●
The launch of new
products at Big 3 Precision and Velvac, as well as strong demand
across many of our core markets, drove first quarter 2021 net sales
to $73.1 million, a record in Eastern’s more than 160-year
history and an increase of 12% compared with the first quarter of
2020.
●
Gross margin
expansion of 1.2% in the first quarter of 2021 compared to the
first quarter of 2020 reflects higher sales and our success in
passing on most raw material cost increases in many of our
businesses.
●
Earnings per
diluted share in the first quarter of 2021 were $0.93, an increase
of 102% over 2020, due to strong sales growth and a one-time gain
of $1.4 million, net of tax, associated with the combination of our
Eberhard and Illinois Lock businesses.
●
Cash flow from
operations remained strong at $2.1 million for the first quarter
2021, an increase of 40% over the first quarter 2020, despite the
$4.5 million increase of accounts receivable associated with the
increase in sales in the first quarter of 2021.
●
Our balance sheet
continued to strengthen with net leverage of 2.8x, down from 3.0x
at the end of fiscal year 2020.
NAUGATUCK,
CT – April 28, 2021 - The Eastern Company
(“Eastern”) (NASDAQ:EML), an industrial manufacturer of
unique engineered solutions serving industrial markets, today
announced the results of operations for the first fiscal quarter
ended April 3, 2021.
President
and CEO August Vlak commented, “Sales in the first quarter of
2021 increased 12% compared to the first quarter of 2020, primarily
due to product launches at Big 3 Precision and Velvac, as well as
strong demand across a broad range of commercial vehicle markets,
including class 8 trucks, service bodies and light trucks,
recreational vehicles, and electric vehicle manufacturers.
Additional sales from the acquisition of Hallink, completed in the
second quarter of 2020, partly offset the loss of sales from the
divestitures of Canadian Commercial Vehicles Corporation and
Sesamee Mexicana in the second and fourth quarters of last year,
respectively. As a result of strong demand across many of our
markets, our backlog at the end of the first quarter 2021 remains
strong at $98.0 million, an increase of $24.4 million, or 33% over
the backlog at the end of the first quarter
2020.”
Mr.
Vlak continued, “In the first quarter, our businesses
demonstrated exceptional resilience in the face of significant
disruptions in our supply chains and increases in raw material
prices. All our businesses were impacted by the interruptions in
transportation, causing significant delays in shipments. Moreover,
freight costs and prices of certain raw materials, including steel
and resins, rose throughout the quarter. Many of our businesses
have been able to pass on most of these increases. We believe that
purchasing adjustments and pricing recovery will help offset some
of the impact of these trends in the remainder of the
year.
Mr.
Vlak observed, “Earnings of $0.93 per diluted share represent
a 102% increase over earnings of $0.46 per diluted share in the
first quarter of 2020. First quarter 2021 earnings include one-time
gains associated with the consolidation of Eberhard and Illinois
Lock. Adjusted earnings of $0.71 per diluted share reflect an
increase of 54% over the first quarter of 2020. In addition, our
adjusted EBITDA margin in the first quarter of 2021 was 12%,
compared to 10% in the first quarter of 2020. (Please refer to our
statement on non-GAAP measures and the attached schedules for a
complete reconciliation between GAAP and non-GAAP measures.) We
believe that this quarter is beginning to show the earnings
potential of our Engineered Solutions businesses, including Big 3
Precision, Eberhard, and Velvac, despite lingering supply chain
challenges.”
Mr.
Vlak continued, “Our balance sheet remains strong. As of
April 3, 2021, we have
cash and cash equivalents of $17.5 million and an untapped $20
million revolving line of credit. Our net leverage ratio is 2.8x,
and our fixed charge coverage ratio is 2.4x, both of which
comfortably comply with our bank covenants of 4.25x and 1.25x,
respectively. We believe that our strong balance sheet and ample
liquidity position Eastern well to sustain its
growth.”
First Quarter 2021 Financial Results
Net
sales in the first quarter of 2021 increased to $73.1 million from
$65.3 million in the first quarter of 2020. Sales in the Engineered
Solutions segment grew by 19% to $61.8 million in the first quarter
of 2021 from $51.8 million in the first quarter of 2020. Sales in
the Diversified Products segment decreased by 16% in the first
quarter of 2021 compared to the first quarter of 2020, primarily
due to the divestitures of Canadian Commercial Vehicles Corporation
and Sesamee Mexicana last year.
Net
income for the first quarter of 2021 increased by 102% to $5.8
million, or $0.93 per diluted share, from $2.9 million, or $0.46
per diluted share, in the first quarter of 2020. Operating profit
margin in the Engineered Products segment improved to 10% of sales
in the first quarter 2021 from 7% of sales in the first quarter of
2020. Operating profit margin in the Diversified Products segment
fell to -1% of sales in the first quarter of 2021 compared to
breakeven in the first quarter of 2020.
Conference Call and Webcast
The
Eastern Company will host a conference call to discuss its results
for the first quarter of 2021 and other matters on Wednesday, May
12, 2021 at 11:00 AM Eastern Time. Participants can access the
conference call by phone at 888-506-0062 (toll free in US &
Canada) or 973-528-0011 (international). Participants can also join via the
web at
https://www.webcaster4.com/Webcast/Page/1757/41050
The Eastern Company manages industrial businesses that design,
manufacture and sell unique engineered solutions to industrial
markets, focusing on industries that offer long-term macroeconomic
growth opportunities. The Company operates across two reporting
segments – Engineered Solutions and Diversified Products --
from locations in the U.S., Canada, Mexico, U.K., Taiwan and China.
More information on the Company can be found at www.easterncompany.com.
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 “would”, “should”,
“may,” “will,” "believes,"
“estimates,” "intends", "continues," "reflects,"
"plans," "anticipates," "expects," “potential,”
“opportunities” 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. 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, effects of the COVID-19 pandemic
and the measures being taken to limit the spread and resurgence of
COVID-19, including supply chain disruptions, delays in delivery of
our products to our customers, impact on demand for our products,
reductions in production levels, increased costs, including costs
of raw materials, the impact on global economic conditions, the
availability, terms and cost of financing, including borrowings
under credit arrangements or agreements, and risks associated with
employees working remotely or operating with reduced workforce; the
scope and duration of the COVID-19 pandemic, including the extent
of any resurgences and how quickly and to what extent normal
economic activity can resume; the timing of the development and
distribution of effective vaccines or treatment of COVID-19,
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.
Non-GAAP Financial Measures
The
non-GAAP financial measures we provide in this release should be
viewed in addition to, and not as an alternative for, results
prepared in accordance U.S. GAAP. A reconciliation of non-GAAP
financial measures referenced in this release to the nearest GAAP
results is provided with this release.
To
supplement the consolidated financial statements prepared in
accordance with U.S. GAAP, we have presented adjusted earnings per
share, adjusted EBITDA and adjusted EBITDA margin, which are
considered non-GAAP financial measures. The non-GAAP financial
measures presented may differ from similarly titled non-GAAP
financial measures presented by other companies, and other
companies may not define these non-GAAP financial measures in the
same way. These measures are not substitutes for their comparable
GAAP financial measures, such as net sales, net income, diluted
earnings per common share, or other measures prescribed by U.S.
GAAP, and there are limitations to using non-GAAP financial
measures.
Adjusted
earnings per share is defined as diluted earnings per share
excluding, when they occur, the impacts of impairment losses,
losses on sale of subsidiaries, transaction expenses, factory
relocation expenses and restructuring costs. We believe that
adjusted earnings per share provides important comparability of
underlying operational results, allowing investors and management
to access operating performance on a consistent basis.
Adjusted
EBITDA is defined as net income before interest expense, provision
for income taxes, and depreciation and amortization and excluding,
when they occur, the impacts of impairment losses, losses on sale
of subsidiaries, transaction expenses, factory relocation expenses
and restructuring expenses. Adjusted EBITDA is a tool that can
assist management and investors in comparing our performance on a
consistent basis by removing the impact of certain items that
management believes do not directly reflect our underlying
operations.
Adjusted
EBITDA margin is defined as adjusted EBITDA as a percentage of net
sales.
Management
uses such measures to evaluate performance period over period, to
analyze the underlying trends in our business including our
business segments, to assess our performance relative to our
competitors, and to establish operational goals and forecasts that
are used in allocating resources. These financial measures should
not be considered in isolation from, or as a replacement for, GAAP
financial measures.
We
believe that presenting non-GAAP financial measures in addition to
GAAP financial measures provides investors greater transparency to
the information used by our management for its financial and
operational decision-making. We further believe that providing this
information better enables our investors to understand our
operating performance and to evaluate the methodology used by
management to evaluate and measure such performance.
Investor Relations Contacts
The Eastern Company
August
Vlak or John L. Sullivan III
203-729-2255
THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
Three Months Ended
|
|
|
April 3,
2021
|
March
28,
2020
|
Net sales
|
$73,097,875
|
$65,325,616
|
Cost
of products sold
|
(55,839,321)
|
(50,663,943)
|
Gross
margin
|
17,258,554
|
14,661,673
|
|
|
|
Product
development expense
|
(838,825)
|
(775,444)
|
Selling
and administrative expenses
|
(10,485,520)
|
(10,024,958)
|
Operating
profit
|
5,934,209
|
3,861,271
|
|
|
|
Interest
expense
|
(702,859)
|
(827,664)
|
Other
income
|
2,426,741
|
744,793
|
Income before income taxes
|
7,658,091
|
3,778,400
|
|
|
|
Income
taxes
|
(1,817,264)
|
(882,583)
|
Net income
|
$5,840,827
|
$2,895,817
|
|
|
|
Earnings per share:
|
|
|
Basic
|
$0.93
|
$0.46
|
|
|
|
Diluted
|
$0.93
|
$0.46
|
|
|
|
Cash dividends per share:
|
$0.11
|
$0.11
|
THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
|
|
|
|
|
April 3,
2021
|
January
2,
2021
|
|
(unaudited)
|
|
Current Assets
|
|
|
Cash
and cash equivalents
|
$17,464,669
|
$16,101,635
|
Marketable
securities
|
29,224
|
28,951
|
Accounts
receivable, less allowances: 2021 - $618,000; 2020 -
$545,000
|
42,228,264
|
37,749,129
|
Inventories
|
53,960,426
|
53,112,393
|
Current
portion of note receivable
|
459,863
|
398,414
|
Prepaid
expenses and other assets
|
5,341,214
|
4,345,250
|
Total Current Assets
|
119,483,660
|
111,735,772
|
|
|
|
Property, Plant and Equipment
|
86,539,328
|
88,198,093
|
Accumulated
depreciation
|
(47,244,599)
|
(48,246,120)
|
Property, Plant and Equipment,
Net
|
39,294,729
|
39,951,973
|
|
|
|
Goodwill
|
76,921,385
|
76,895,015
|
Trademarks
|
5,404,284
|
5,404,284
|
Patents and other intangibles, net of accumulated
amortization
|
25,958,715
|
27,096,006
|
Long term notes receivable, less current portion
|
1,547,503
|
1,677,277
|
Right of Use Assets
|
12,882,498
|
12,768,027
|
Other Assets
|
122,714,385
|
123,840,609
|
|
|
|
TOTAL ASSETS
|
$281,492,774
|
$275,528,354
|
THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
April 3,
2021
|
January
2,
2021
|
|
(unaudited)
|
|
Current Liabilities
|
|
|
Accounts
payable
|
$25,357,557
|
$23,507,719
|
Accrued
compensation
|
2,520,725
|
3,675,223
|
Other
accrued expenses
|
4,785,793
|
4,121,568
|
Current
portion of lease liability
|
3,039,689
|
2,923,761
|
Current
portion of long-term debt
|
7,062,689
|
6,437,689
|
Total Current Liabilities
|
42,766,453
|
40,665,960
|
|
|
|
Deferred income taxes
|
2,899,074
|
2,899,075
|
Other long-term liabilities
|
1,144,127
|
1,144,127
|
Lease liability
|
9,871,835
|
9,883,168
|
Long-term debt, less current portion
|
80,468,737
|
82,255,803
|
Accrued postretirement benefits
|
1,168,262
|
1,185,139
|
Accrued pension cost
|
32,443,297
|
33,188,623
|
Total Liabilities
|
170,761,785
|
171,221,895
|
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
Voting
Preferred Stock, no par value:
|
|
|
Authorized
and unissued: 1,000,000 shares
|
|
|
Nonvoting
Preferred Stock, no par value:
|
|
|
Authorized
and unissued: 1,000,000 shares
|
|
|
Common
Stock, no par value, Authorized: 50,000,000 shares
|
31,779,299
|
31,501,041
|
Issued:
9,003,230 shares in 2021 and 8,996,625 shares in 2020
|
|
|
Outstanding:
6,253,501 shares in 2021 and 6,246,896 shares in 2020
|
|
|
Treasury
Stock: 2,749,729 shares in 2021 and 2,749,729 shares in
2020
|
(20,537,962)
|
(20,537,962)
|
Retained
earnings
|
128,356,468
|
122,840,131
|
Accumulated
other comprehensive loss:
|
|
|
Foreign
currency translation
|
874,810
|
953,864
|
Unrealized
loss on marketable securities, net of tax
|
(4,302)
|
(4,507)
|
Unrealized
loss on interest rate swap, net of tax
|
(974,045)
|
(1,387,085)
|
Unrecognized
net pension and postretirement benefit costs, net of
tax
|
(28,763,279)
|
(29,059,023)
|
Accumulated
other comprehensive loss
|
(28,866,816)
|
(29,496,751)
|
Total Shareholders’ Equity
|
110,730,989
|
104,306,459
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$281,492,774
|
$275,528,354
|
THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Three Months Ended
|
|
|
April 3,
2021
|
March
28,
2020
|
Operating Activities
|
|
|
Net
income
|
$5,840,827
|
$2,895,817
|
Adjustments
to reconcile net income to net cash provided by
operating activities:
|
|
|
Depreciation
and amortization
|
2,192,622
|
2,055,782
|
Unrecognized
pension and postretirement benefits
|
(674,262)
|
(678,305)
|
(Gain)
loss on sale of equipment and other assets
|
(1,600,288)
|
(437,446)
|
Provision
for doubtful accounts
|
73,097
|
156,286
|
Stock
compensation expense
|
278,258
|
238,293
|
Changes
in operating assets and liabilities:
|
|
|
Accounts
receivable
|
(4,551,399)
|
(2,273,864)
|
Inventories
|
(1,015,663)
|
(994,546)
|
Prepaid
expenses and other
|
(744,138)
|
341,582
|
Other
assets
|
(156,726)
|
(415,415)
|
Accounts
payable
|
2,063,182
|
2,766,829
|
Accrued
compensation
|
(1,159,489)
|
(1,585,976)
|
Other
accrued expenses
|
1,554,036
|
(564,572)
|
Net cash provided by operating activities
|
2,100,057
|
1,504,465
|
|
|
|
Investing Activities
|
|
|
Marketable
securities
|
(273)
|
11,151
|
Payments
received from notes receivable
|
68,325
|
—
|
Proceeds
from sale of equipment
|
1,994,017
|
445,212
|
Purchases
of property, plant and equipment
|
(919,589)
|
(828,115)
|
Net cash provided by/used in investing activities
|
1,142,480
|
(371,752)
|
|
|
|
Financing Activities
|
|
|
Principal
payments on long-term debt
|
(1,162,045)
|
(1,221,423)
|
Lease
payments
|
(9,875)
|
—
|
Purchase
common stock for treasury
|
—
|
(368,864)
|
Dividends
paid
|
(684,702)
|
(686,614)
|
Net cash used in financing activities
|
(1,856,622)
|
(2,276,901)
|
|
|
|
Effect of exchange rate changes on cash
|
(22,881)
|
(343,436)
|
Net change in cash and cash equivalents
|
1,363,034
|
(1,487,624)
|
|
|
|
Cash
and cash equivalents at beginning of period
|
16,101,635
|
17,996,505
|
Cash and cash equivalents at end of period
|
$17,464,669
|
$16,508,881
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
Interest
|
$685,520
|
$827,664
|
Income
taxes
|
21,100
|
21,000
|
|
|
|
Non-cash investing and financing activities
|
|
|
Right
of use asset
|
114,471
|
(489,822)
|
Lease
liability
|
(104,595)
|
489,822
|
THE EASTERN COMPANY AND SUBSIDIARIES
RECONCILIATION OF ONE-TIME ITEMS FROM GAAP TO NON-GAAP
EPS
($000's)
|
|
|
|
|
|
|
April 3,
2021
|
March
28,
2020
|
|
|
|
Net
Income as reported per generally accepted accounting principles
(GAAP)
|
$5,841
|
$2,896
|
|
|
|
|
|
|
Earnings
Per Share as reported under generally accepted accounting
principles (GAAP):
|
|
|
Basic
|
$0.93
|
$0.46
|
Diluted
|
$0.93
|
$0.46
|
|
|
|
Adjustments
for one-time items:
|
|
|
|
|
|
Gain
on sale of Eberhard Hardware Ltd building, net of tax
|
(1,353)A
|
-
|
|
|
|
Total
adjustments for one-time items
|
|
|
(Non-GAAP)
|
(1,353)
|
-
|
|
|
|
Adjusted
Net Income (related to one-time items)
|
$4,488
|
$2,896
|
|
|
|
|
|
|
Adjusted
earnings per share (related to one-time items);
(Non-GAAP)
|
|
|
Basic
|
$0.72
|
$0.46
|
Diluted
|
$0.71
|
$0.46
|
A) Gain on sale of Eberhard Hardware Ltd building
THE EASTERN COMPANY AND SUBSIDIARIES
RECONCILIATION OF ONE-TIME ITEMS FROM GAAP TO NON-GAAP
EBITDA
($000's)
|
|
|
|
|
|
|
April 3,
2021
|
March
28,
2020
|
|
|
|
Net
Income/(loss) as reported per generally accepted accounting
principles (GAAP)
|
$5,841
|
$2,896
|
|
|
|
Interest
expense
|
703
|
828
|
|
|
|
Provision
for income taxes
|
1,817
|
883
|
|
|
|
Depreciation
and amortization
|
2,193
|
2,056
|
|
|
|
Gain
on sale of Eberhard Hardware Ltd Building
|
(1,841)A
|
-
|
|
|
|
|
|
|
Adjusted
EBITDA
|
$8,713
|
$6,662
|
A) Gain on sale of Eberhard Hardware Ltd building