Strattec Security Corporation

Third-quarter sales declined 4.5% year over year. Gross profit was $22.7 million versus $23.1 million a year ago, and gross margin improved 50 basis points to 16.5%. Net income attributable to Strattec was $3.2 million, or $0.78 per diluted share, versus $5.4 million, or $1.32 per diluted share, last year; adjusted net income was $3.7 million, or $0.90 per diluted share. Adjusted EBITDA was $10.1 million versus $12.5 million a year ago. Operating cash flow was $11.4 million, and cash and equivalents were $107 million. Management said the annual impact of EV-related customer cancellations is about $9 million, and Q4 revenue is expected to be down 3% to 4% year over year. Over the next few years, the company is targeting gross margin of 18% to 20% and SAE of about 10% to 11% of revenue, excluding unusual items.

Jennifer Slater framed the quarter as steady progress on transformation in a difficult auto market. She emphasized that the company is using restructuring, process improvement, and portfolio review to build a more predictable business, while also pursuing growth through deeper content with existing customers, more diversified customer relationships, and engineering-led product roadmaps. Her tone was confident but measured, repeatedly noting that the company is still early in the transformation and focused on balancing cost actions with delivery and quality.

Matthew Pauli highlighted the main financial drivers: revenue down 4.5%, gross profit of $22.7 million, gross margin of 16.5%, and adjusted EBITDA of $10.1 million. He said restructuring savings of about $1.7 million and recoveries on canceled programs helped offset higher labor and benefits, tariff costs, and FX headwinds; the FX loss included a $900 thousand currency loss that reduced EPS by $0.16. He also pointed to $11.4 million of operating cash flow, $107 million of cash, and the refinancing of the joint venture credit facility after quarter-end, saying the balance sheet supports investment, modernization, and cyclical flexibility.

Analyst John Franzreb focused on canceled EV programs, whether management was walking away from unprofitable programs, and what still needs to happen to reach the 18% gross margin target. Management said the cancellations were customer-driven shifts from EV back to ICE in North America, not a quarter-specific decision to exit programs, and that the company had previously reviewed its portfolio and stopped investing in its switch portfolio. On margins, Jennifer Slater said the levers are continued cost optimization, additional pricing opportunities, and eventually more volume, while Matthew Pauli noted gross margin has already improved from 15% last fiscal year to just north of 16.5% on a trailing-twelve-month basis. They also said the Mexico restructuring changes are expected to add about $800 thousand in annualized savings starting in Q4.