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STRATTEC SECURITY CORP (STRT)·Q2 2025 Earnings Summary

Executive Summary

  • Revenue grew 9.6% year over year to $0.130B on new program launches and higher-value content; sequentially, sales declined versus Q1 on seasonality and customer inventory normalization .
  • Gross margin expanded to 13.2% (+180 bps YoY) on FX tailwinds and volume; Adjusted EBITDA rose to $8.0M (6.1% of sales), up from $5.0M (4.3%) a year ago .
  • Diluted EPS was $0.32 (GAAP) vs. $0.26 YoY, and Adjusted diluted EPS was $0.65 vs. $0.36 YoY, reflecting cost actions and pricing; sequential EPS declined from Q1 ($0.92) as FX hedges swung to a loss and ES&A rose .
  • Operations generated $9.4M of cash; cash ended at $42.6M (+$8.2M Q/Q). Management highlighted $1.2M annualized savings from Milwaukee shift reduction and proactive tariff planning as key catalysts .

What Went Well and What Went Wrong

What Went Well

  • Higher-value content and new launches drove broad-based sales growth; Power Access +27% YoY and Engineered Latches +20% YoY were standout categories (“higher value content in Power Access and Latches”) .
  • Cost optimization actions: elimination of a shift in Milwaukee expected to generate ~$1.2M annual savings; working capital initiatives reduced pre-production tooling balances by ~$10.5M year-to-date (“we continued to unlock value on our balance sheet”) .
  • Pricing progress: commercial team identified ~$8M in annualized pricing improvements, expected to begin in Q3, supporting margin trajectory (“we should begin to realize the improved pricing in the third quarter”) .

What Went Wrong

  • Keys & locksets continued to decline, weighing on mix; category revenues fell to $20.1M from $24.6M YoY .
  • FX hedging losses and other expense swung to a $0.5M charge versus $1.1M income in the prior year, pressuring EPS despite operational improvement .
  • Mexico labor inflation: government-mandated increases (20% prior January; ~12% this January) raised costs by ~$1.4M in Q2, limiting ex-FX margin expansion .

Financial Results

Income Statement and EPS vs Prior Periods

MetricQ2 FY2024 (Dec 31, 2023)Q1 FY2025 (Sep 29, 2024)Q2 FY2025 (Dec 29, 2024)
Revenue ($USD Millions)$118.5 $139.1 $129.9
Gross Margin %11.4% 13.6% 13.2%
Operating Income ($USD Millions)$0.06 $5.06 $2.13
Operating Margin %0.0% (approx) 3.6% (derived from cited figures) 1.6%
Diluted EPS (GAAP) ($)$0.26 $0.92 $0.32
Adjusted EBITDA ($USD Millions)$5.0 $9.93 $7.97
Adjusted EBITDA Margin %4.3% 7.1% 6.1%
Adjusted Diluted EPS ($)$0.36 $0.92 $0.65

Segment/Product Breakdown (Revenue)

Product Category ($USD Millions)Q2 FY2024Q2 FY2025YoY Change
Door handles & exterior trim$30.16 $33.08 +$2.93
Power access solutions$26.08 $33.08 +$7.00
Keys & locksets$24.62 $20.07 -$4.55
Latches$14.71 $17.71 +$3.00
User interface controls$11.42 $13.99 +$2.57
Aftermarket & OE service$9.03 $9.72 +$0.69
Other$2.52 $2.28 -$0.24
Total$118.53 $129.92 +$11.39

Customer Mix (Revenue)

Customer ($USD Millions)Q2 FY2024Q2 FY2025YoY Change
General Motors$36.52 $39.55 +$3.03
Ford Motor Company$24.63 $28.96 +$4.33
Stellantis$13.20 $11.73 -$1.47
Hyundai Motor Group (incl. Kia)$11.67 $14.08 +$2.41
Tier 1 Customers$18.06 $18.59 +$0.53
All Other Customers$14.45 $17.02 +$2.57
Total$118.53 $129.92 +$11.39

KPIs and Balance Sheet

KPIQ2 FY2024Q1 FY2025Q2 FY2025
Cash from Operations ($USD Millions)$(3.04) $11.34 $9.44
Capital Expenditures ($USD Millions)$1.47 $2.07 $0.92
Cash & Equivalents ($USD Millions)$11.58 $34.40 $42.63
Pre-production costs ($USD Millions)N/A$15.27 $11.65
VAT recoverable ($USD Millions)N/A$20.62 $21.08
Primary Working Capital % (as of date)22% (Jun 30, 2024) —24% (Dec 29, 2024)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Annualized pricing improvementsStarting Q3 FY2025—~$8M annualized expected to begin in Q3 (dependent on demand) Raised (new)
Restructuring savings (Milwaukee)Ongoing—~$1.2M annualized savings from shift elimination; partial recognition starting Q3 Raised (new)
CapExFY2025—CFO reevaluating; Q2 spend ~$0.9M; H1 spend $3.0M; further detail in Q3 Maintained (no formal target)
Tax rate (effective)Q2 FY2025—22.5% actual in Q2 (not formal guidance) N/A
DividendsOngoing—No commentary in Q2 call specific to dividends N/A
TariffsNear term—Proactively addressing potential tariff impacts; engaged with customers/suppliers; no quantified guidance in Q2 Maintained (risk monitoring)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025, Q3 FY2025)Current Period (Q2 FY2025)Trend
Tariffs/macroEstimated annual tariff impact later quantified at ~$9–$12M in Q3; mitigation underway via logistics, sourcing, and pass-throughs “Proactively addressing potential challenges the tariffs may present”; footprint evaluation continues Increasing attention; mitigation actions accelerating
Operational footprintQ3: Mexico restructuring; total annualized savings ~$5M including Milwaukee Eliminated a shift in Milwaukee (~$1.2M annual savings); HQ listed for sale; process early Cost optimization underway; asset monetization considered
Pricing strategyQ3: ~$2.5M price benefit in quarter; adjusted EBITDA margin 8.9% ~$8M annualized pricing identified; expected realization starting Q3 Strengthening commercial discipline
Product performanceQ1/Q3: Power Access momentum; Keys & locksets headwinds Power Access +27% YoY; Latches +20% YoY; Keys & locksets down Mix shifting to higher-value content
FX exposure/hedgingQ3: FX benefit +$4.4M; tariffs offset partly; ongoing hedging Gross margin +270 bps benefit from FX; other expense hit from forward contracts FX supportive; hedge P&L volatility persists
Labor inflation (Mexico)Q3: elevated labor costs; restructuring to offset $1.4M labor increase; merit ~12% in January vs 20% prior year Pressuring margins; managed via cost actions
Working capitalQ3: CFO $20.7M; inventory reduction; payable alignment CFO $9.4M; pre-prod tooling recoveries improving Sustained improvement

Management Commentary

  • “We made progress… to strengthen our earnings power as we restructured our U.S. manufacturing operations by reducing the number of shifts, which is expected to generate $1.2 million in annualized savings… we are proactively addressing the potential challenges the tariffs may present.” — Jennifer Slater, CEO .
  • “Gross margin expanded to 13.2%… a 270 basis point benefit of favorable foreign exchange… Approximately 70% of our sales are shipped to the U.S. or picked up… The remaining 30% are sold to OEMs globally.” — Matthew Pauli, CFO .
  • “Our commercial team recently captured about $8,000,000 in new annualized pricing… we expect that we should begin to realize the improved pricing in the third quarter.” — Jennifer Slater, CEO .

Q&A Highlights

  • Pricing uplift: ~$8M annualized beginning in Q3; dependent on customer demand and program extensions across multiple product categories and OEMs .
  • Labor costs: Mexico wage increases ~12% in January 2025 (after 20% prior year) will still impact quarterly results going forward .
  • Customer trends: Stellantis down ~10% YoY in Q2; Ford/GM/Kia cited as positive contributors; stability in platform demand signaled .
  • Real estate footprint: Milwaukee HQ listed for $17M; process early; evaluating timeline and market interest .
  • CapEx: CFO reevaluating spend; Q2 CapEx just under $1M; H1 ~$3M focused on programs and upgrades .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 FY2025 EPS and revenue was unavailable due to data access limits at the time of retrieval; therefore, estimate comparisons are not included. Management did not provide formal quantitative guidance in the Q2 materials .

Key Takeaways for Investors

  • Mix shift to higher-value content and pricing actions support margin expansion; Adjusted EPS rose 81% YoY to $0.65, and Adjusted EBITDA margin expanded to 6.1% despite labor inflation and hedge losses .
  • Near-term tariff risk is a watch item; proactive logistics, pricing recovery, and sourcing changes are underway, with operational savings (Milwaukee shift elimination) providing partial offset .
  • Working capital discipline is tangible: CFO $9.4M in Q2 and $20.8M YTD; pre-production tooling reduced meaningfully, bolstering liquidity ($42.6M cash) .
  • Category dynamics matter for trajectory: continued pressure in keys & locksets offsets robust Power Access/Latches growth; monitor OEM mix (Stellantis softness vs GM/Ford/Kia strength) .
  • Sequential softness vs Q1 (sales, EPS) was driven by hedging P&L and higher ES&A/bonuses; underlying ex-FX margin improved ~100 bps per CFO, supporting medium-term recovery once pricing and restructuring benefits fully phase in .
  • Asset footprint rationalization (HQ sale process) and ongoing capex discipline signal a focus on ROIC and cash generation through FY2025 .
  • Actionable: focus on confirmation of ~$8M pricing capture in Q3, Mexico/US restructuring benefits, and tariff mitigation progress as the primary stock narrative drivers in the next quarter .