STRATTEC SECURITY CORPORATION Reports Fiscal 2018 Fourth Quarter and Full Year Operating Results

8/9/2018, 10:00 PM (Source: GlobeNewswire)

MILWAUKEE, Wis., Aug. 09, 2018 (GLOBE NEWSWIRE) -- STRATTEC SECURITY CORPORATION (“STRATTEC” or the “Company”) (NASDAQ:STRT) today reported operating results for the fiscal fourth quarter and year ended July 1, 2018.

Fourth Quarter
Net sales for the fourth quarter ended July 1, 2018 were $116.7 million, compared to net sales of $108.4 million for the fourth quarter ended July 2, 2017.  Net income was $4.0 million in the current year quarter compared to $1.8 million in the prior year quarter.  Diluted earnings per share for the 2018 fourth quarter were $1.07 compared to $0.48 in the prior year quarter.

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

 Three Months Ended
 July 1, 2018 July 2, 2017
Fiat Chrysler Automobiles$33,263 $25,984
General Motors Company21,675 22,518
Ford Motor Company14,933 16,250
Tier 1 Customers19,232 17,678
Commercial and Other OEM Customers22,609 17,818
Hyundai / Kia5,018 8,182
TOTAL$116,730 $108,430

Sales to Fiat Chrysler Automobiles in the current year quarter increased over the same period in the prior year quarter due to a combination of higher vehicle production volumes and product content on the components we supply.  The decrease in sales to General Motors Company in the current year quarter compared to the prior year quarter related primarily to lower production volumes and content on products we supplied to Opel Automotive GmbH as part of our General Motors business.  We now supply these products directly to Opel Automotive whose sales are now included under “Commercial and Other OEM Customers” above.  Sales to Ford Motor Company decreased in the current year quarter due to lower production volumes on components we supply compared to the prior year quarter.  Sales to Tier 1 Customers increased in the current year quarter due to higher production volumes on products we supply.  Sales to Commercial and Other OEM Customers during the current year quarter increased in comparison to the prior year quarter mainly due to new customer programs at Honda of America Manufacturing Inc. and Volkswagen.  These customers, along with the Tier 1 Customers, primarily represent purchasers of vehicle access control products, such as latches, fobs, driver controls 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 on vehicles for which we supply components.

Gross profit margins were 11.3 percent in the current year quarter compared to 13.7 percent in the prior year quarter.  The decrease in gross profit margin in the current year quarter compared to the prior year quarter was attributed to the continuation from our previous quarters of higher production and expediting costs associated with new product launches occurring in fiscal year 2018; in particular in connection with the start-up of our new door handle paint facility in Leon, Mexico. 

Engineering, Selling and Administrative expenses as a percent of net sales in the current year quarter were 8.7 percent compared to 10.9 percent in the prior year quarter. The reduction in overall operating expenses in the current year quarter was primarily due to lower outside expenditures on new product development costs.  During the prior year quarter, we utilized third party vendors for a portion of our development work, which resulted in higher operating expenses during the prior year quarter as compared to the current year quarter.

Also included in cost of goods sold and engineering, selling and administrative costs in the current year quarter were discretionary bonuses approved by the STRATTEC Board of Directors Compensation Committee of $1.0 million relating to the benefit of tax reform that reduced diluted earnings per share by $0.18 in comparison to the prior year quarter.

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

 July 1, 2018 July 2, 2017
Equity Earnings of VAST LLC Joint Venture$1,299 $1,110 
Equity Earnings (Loss) of STRATTEC Advanced Logic, LLC115 (572)
Net Foreign Currency Transaction Gain408 64 
Other258 (273)
 $2,080 $329 

The improvement in equity earnings (loss) of STRATTEC Advanced Logic LLC in the current quarter relates to winding down this business to only selling commercial biometric locks in comparison to the prior year quarter.

The lower tax provision in the current year quarter was attributed to the impact of the new Federal tax law change generally referred to as the “Tax Cuts and Jobs Act of 2017,” which reduced the income tax provision by $2.1 million and increased diluted earnings per share by $0.57 in comparison to the prior year quarter end.

Full Year
For the fiscal year ended July 1, 2018, STRATTEC net sales were $439.2 million compared to net sales of $417.3 million during fiscal 2017.  Net income for fiscal 2018 was $12.3 million compared to net income of $7.2 million in the prior year.  Diluted earnings per share for the current year were $3.32 compared to diluted earnings per share of $1.96 in the prior year. The impact of the new Federal tax law in the current year reduced the income tax provision by $3.0 million and increased diluted earnings per share by $0.81 in comparison to the prior year.

Frank Krejci, President and CEO commented: “Thumbs up and thanks to our team for the progress we made in new product innovation, launching business which was awarded a couple of years ago, opening a new plant and another good year of winning new programs. That lays the groundwork for continued growth in sales and significant opportunities to erase inefficiencies related to simultaneous product launches and expansion initiatives”.     

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 customers’ product recall policies, foreign currency fluctuations, uncertainties stemming from U.S. trade policies, tariffs and reaction to same from foreign countries and costs of operations (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.

Condensed Results of Operations
(In Thousands, except per share amounts)

 Fourth Quarter Ended Years Ended
 July 1, 2018 July 2, 2017 July 1, 2018 July 2, 2017
Net Sales$116,730 $108,430 $439,195 $417,325
Cost of Goods Sold103,593 93,573 384,752 356,370
Gross Profit13,137 14,857 54,443 60,955
Engineering, Selling & Administrative Expenses10,135 11,805 41,168 46,113
Income from Operations3,002 3,052 13,275 14,842
Interest Income- 4 8 136
Interest Expense(376) (141) (1,137) (417)
Other Income (Expense), Net2,080 329 5,552 1,833
Income before Provision for Income Taxes and Non-Controlling Interest4,706 3,244 17,698 16,394
Provision for Income       
  Taxes114 224 2,070 4,284
Net Income $4,592 $3,020 $15,628 $12,110
Net Income Attributable to Non-Controlling Interest616 1,245 3,345 4,913
Net Income Attributable to STRATTEC SECURITY CORPORATION$3,976 $1,775 $12,283 $7,197
Earnings Per Share:       
Basic$1.09 $0.49 $3.39 $2.01
Diluted$1.07 $0.48 $3.32 $1.96
Average Basic Shares Outstanding3,635 3,595 3,628 3,588
Average Diluted Shares Outstanding3,705 3,680 3,703 3,670
 Capital Expenditures$4,752 $10,368 $24,134 $37,010
 Depreciation & Amortization$4,034 $2,964 $14,585 $11,418


Condensed Balance Sheet Data
(In Thousands)

 July 1, 2018  July 2, 2017 
Current Assets:     
Cash and cash equivalents$8,090  $8,361 
Receivables, net73,832  64,933 
Inventories, net46,654  35,476 
Other current assets22,527  20,235 
Total Current Assets151,103  129,005 
Investment in Joint Ventures22,192  16,840 
Other Long Term Assets17,338  16,278 
Property, Plant and Equipment, Net116,542  111,591 
 $307,175  $273,714 
Current Liabilities:     
Accounts Payable$38,439  $39,679 
Other30,354  28,216 
Total Current Liabilities68,793  67,895 
Accrued Pension and Post Retirement Obligations 2,379  2,495 
Borrowings Under Credit Facility51,000  30,000 
Other Long-term Liabilities1,757  610 
Shareholders’ Equity331,375  319,798 
Accumulated Other Comprehensive Loss(33,439) (32,888)
Less: Treasury Stock(135,778) (135,822)
Total STRATTEC SECURITY CORPORATION Shareholders’ Equity162,158  151,008 
Non-Controlling Interest21,088  21,626 
Total Shareholders’ Equity183,246  172,714 
 $307,175  $273,714 

Condensed Cash Flow Statement Data
(In Thousands)

 Fourth Quarter Ended  Years Ended 
   July 1, 2018  July 2, 2017  July 1, 2018  July 2, 2017 
 (Unaudited)  (Unaudited)    
Cash Flows from Operating Activities:           
Net Income$4,592  $3,020  $15,628  $12,110 
Adjustment to Reconcile Net Income to Cash Provided by Operating Activities:           
Equity Gain in Joint Ventures(1,414) (538) (4,532) (666)
Depreciation and Amortization4,034  2,964  14,585  11,418 
Foreign Currency Transaction (Gain) Loss(722) 647  (549) (1,128)
Unrealized Loss (Gain) on Peso Contracts473  (863) 1,160  (2,010)
Deferred Income Taxes2,739  1,851  1,029  1,851 
Stock Based Compensation Expense259  354  1,130  1,508 
Change in Operating Assets/Liabilities(6,713) 3,517  (21,457) 169 
Other, net(10) 33  (54) (110)
Net Cash Provided by Operating Activities3,238  10,985  6,940  23,142 
Cash Flows from Investing Activities:           
Investment in Joint Ventures-  (150) (125) (400)
Additions to Property, Plant and Equipment(4,752) (10,368) (24,134) (37,010)
Other29  (278) 341  (2,128)
Net Cash Used in Investing Activities(4,723) (10,796) (23,918) (39,538)
Cash Flows from Financing Activities:           
Borrowings Under Credit Facility3,000  6,000  24,000  36,000 
Repayments Under Credit Facility-  (2,000) (3,000) (26,000)
Dividends Paid(509) (503) (2,034) (2,012)
Dividends Paid to Non-Controlling Interest Of Subsidiaries (600) (200) (2,817) (1,964)
Contribution from Non-Controlling Interest Of Subsidiaries-  -  -  2,940 
Exercise of Stock Options and Employee Stock Purchases, Including Excess Tax Benefits From Stock Based Compensation25  75  242  262 
Net Cash Provided by Financing Activities1,916  3,372  16,391  9,226 
Foreign Currency Impact on Cash622  (191) 316  54 
Net Increase (Decrease) in Cash & Cash Equivalents1,053  3,370  (271) (7,116)
Cash and Cash Equivalents:           
Beginning of Period7,037  4,991  8,361  15,477 
End of Period$8,090  $8,361  $8,090  $8,361 


Pat Hansen
Senior Vice President and
Chief Financial Officer

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