The Eastern Company

Net sales in Q2 2026 were $61.8 million, down 11.9% to 12% from $70.2 million a year ago. Gross margin was 23.3% in the prior year period and declined on the smaller revenue base; management also said gross margin improved about 60 basis points sequentially, though the transcript contains a wording inconsistency in the exact Q2 gross margin figure. Operating profit was $1.7 million, or 2.7% of sales, versus $3.1 million, or 4.5%, last year. Net income from continuing operations was $5.6 million, or $0.94 per diluted share, versus $2.0 million, or $0.33 per diluted share, aided by a $6.5 million noncash bargain purchase gain tied to Sungear and Crown Precision. Adjusted net income from continuing operations was $0.9 million, or $0.15 per diluted share, versus $3.5 million, or $0.57 per diluted share a year ago. Adjusted EBITDA from continuing operations was $3.4 million versus $6.7 million a year ago. Backlog at July 4, 2026 was $126.2 million, up $39 million or 45% year over year and up from $82.2 million at the end of Q1. For the balance of 2026, management expects most of the backlog to convert to revenue and said second-half visibility is better than at this point in 2025.

Ryan Schroeder struck a more constructive tone on the second half, saying the sequential improvement in results and the stronger order book give him increasing confidence in the business trajectory. He emphasized that the Big 3 below-margin rack issue is behind the company, that truck build recovery is feeding into Velvac and Eberhard, and that the backlog has strengthened across every business. He also framed the aerospace and defense acquisitions as a disciplined, opportunistic way to diversify Eastern into longer-cycle, mission-critical programs, while keeping the company focused on execution and margin recovery.

Nicholas Vlahos highlighted the key financial deltas: sales of $61.8 million, backlog of $126.2 million, operating profit of $1.7 million, adjusted EPS of $0.15, and adjusted EBITDA of $3.4 million. He said gross margin pressure came from lower volume, the runoff of below-margin Big 3 contracts, and about $1.9 million of tariff costs on China-sourced products, most of which were recovered through price. On liquidity, he said Eastern generated $12 million of operating cash in the first half, ended with $15.1 million of cash, $41.7 million of long-term debt, and $59 million of availability on its $100 million revolver, and remains in compliance with covenants. He also noted $1.5 million of capital expenditures in the first half, a $0.11 quarterly dividend, and 19,000 shares repurchased in the quarter with 256,000 shares remaining authorized.

Analysts focused on how higher truck build rates would flow through revenue and margins, whether tariff costs had already been recovered in pricing, and how quickly the new aerospace acquisitions could become meaningfully profitable. Management said truck demand is already showing up in June and July orders, with benefits expected for the rest of 2026 and into 2027, and that pricing changes tied to tariffs are mostly flowing through within about 30 days. On the acquisitions, management said the combined businesses could run at roughly $5 million to $6 million per quarter, that inventory accounting will depress near-term gross margin, and that the target gross margin over time is 20% to 30%. They also said the acquired backlog is just over $18 million, about half of which they expect to convert in 2026, and that they plan to address any mispriced work rather than wait for future orders.