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STRATTEC SECURITY CORP (STRT)·Q3 2025 Earnings Summary

Executive Summary

  • Strong quarter with revenue of $144.1M, GAAP diluted EPS of $1.32 and adjusted EPS of $1.50; gross margin expanded to 16.0% (+560 bps YoY) and operating cash flow was $20.7M .
  • Results exceeded S&P Global consensus: revenue $144.1M vs $140.8M estimate, and adjusted EPS $1.50 vs $0.95 estimate; GAAP EPS of $1.32 also well above consensus. Bold beat driven by pricing capture, mix, FX, and cost actions; headwinds included tariffs (+$0.8M in Q3) and higher ES&A for transformation investments .
  • Management quantified tariff risk at $9–$12M annualized pre‑mitigation; ~90% of U.S. sales volume is USMCA compliant, and mitigation actions are underway (logistics, pricing, sourcing); restructuring savings now ~$5M annualized, ramping to full run-rate in Q1 FY26 .
  • Liquidity improved: quarter-end cash rose to $62.1M; management indicated FY25 CapEx ~$7.5M with $2–$3M in Q4, and a “go-forward” CapEx framework around ~$10M; dividend reinstatement not near-term given macro/tariff uncertainty .

What Went Well and What Went Wrong

  • What Went Well

    • Cash generation and liquidity: “We generated nearly $21 million in cash from operations in the third quarter… With over $60 million in cash and limited borrowings… we’re operating from a position of strength” .
    • Margin expansion: Gross margin up to 16% (+560 bps YoY; +280 bps QoQ) driven by pricing, mix, FX (+$4.4M), and efficiencies; adjusted EBITDA margin up 450 bps YoY to 8.9% .
    • Structural actions: Mexico restructuring and earlier Milwaukee actions total ~$5M annualized savings; pricing wins across key product lines (keys/locksets and power access); organizational talent upgrades .

  • What Went Wrong

    • Tariffs: Incremental $0.8M in Q3 costs; annualized exposure estimated at $9–$12M before mitigation; ~6% of consolidated sales subject to recent tariffs .
    • ES&A up $3.3M YoY (+25.9%) on restructuring charges, added salaries, and higher incentives; transformation investments elevated opex near term .
    • Labor inflation: Mexico labor costs and bonus accruals pressured margins in prior quarters; continued cautious tone on auto production and tariff-related volume impacts .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$139.052 $129.919 $144.082
Diluted EPS (GAAP, $USD)$0.92 $0.32 $1.32
Adjusted Diluted EPS ($USD)$0.92 $0.65 $1.50
Gross Margin (%)13.6% 13.2% 16.0%
Adjusted EBITDA ($USD Millions)$9.928 $7.970 $12.873
Operating Cash Flow ($USD Millions)$11.337 $9.444 $20.720
Cash & Equivalents ($USD Millions)$34.403 $42.625 $62.106
Q3 2025 vs EstimatesConsensus*ActualOutcome
Revenue ($USD Millions)140.836*144.082 Beat
Primary EPS (Normalized/Adjusted, $USD)0.95*1.50 Beat
GAAP Diluted EPS ($USD)0.95*1.32 Beat

Values retrieved from S&P Global.*

KPIs and additional disclosures:

  • Operating margin: 4.9% in Q3 vs 1.6% in Q2 .
  • Net income attributable to STRATTEC: $5.396M in Q3 vs $1.319M in Q2 .
  • ES&A expenses: $16.0M in Q3 (+$3.3M YoY); includes $0.8M restructuring and $1.2M higher incentives .
  • FX tailwind: +$4.4M benefit to Q3 gross profit .
  • Tariff costs: +$0.8M in Q3; annualized $9–$12M pre-mitigation .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
CapExFY 2025Not specified previously~$7.5M for FY25; ~$2–$3M in Q4; go-forward framework ~$10MNew/clarified
Tariff Impact (cost)AnnualizedNot quantified previously$9–$12M before mitigation; ~30% mitigated to date; pursuing customer recoveryNew quantified; mitigation in progress
Restructuring SavingsAnnualized$1.2M (Milwaukee shift elimination, disclosed Q2) ~$5M (Milwaukee + Mexico), full run-rate by Q1 FY26Raised
DividendN/ANo reinstatement“Not there” given uncertainty; continue to evaluate capital allocationMaintained pause
LiquidityQ3 2025Cash $42.6M at Q2 Cash $62.1M; ~$47M revolver availabilityImproved

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Tariffs & TradeIdentified as fluid risk; reliance on Mexico assembly; beginning mitigation planning Quantified $9–$12M annualized impact; ~90% USMCA compliant; 30% mitigated; $0.8M Q3 cost; tariff task force and logistics/pricing/sourcing actions Intensifying but mitigated; constructive recovery trajectory
Pricing Capture~$8M annualized pricing secured; realization expected from Q3 ~$2.5M price benefit in Q3; continued pricing discussions with customers Improving realization
Restructuring/FootprintMilwaukee shift elimination: $1.2M annualized savings; HQ listed for sale Mexico restructuring adds ~$4.5M; total ~$5M annualized savings, ramp to full run-rate by Q1 FY26; facility sale progress “pleased” Accelerating structural efficiency
Product PerformancePower Access and Latches strong; Keys/Locksets headwinds Sales improvement via higher-value content and mix; modest YoY sales improvement; Stellantis down ~10% in Q2 Mix shift to higher-value content continues
Cash & Working CapitalPreproduction tooling reduced ~$10.5M by Q2; strong cash generation Q3 operating cash flow $20.7M; inventory -$6M; AP aligned to customer terms Sustained cash discipline
IT/ModernizationOngoing IT upgrades and productivity investments Remaining IT upgrades and equipment in Q4; CapEx plan clarified Execution ongoing

Management Commentary

  • “We generated nearly $21 million in cash from operations in the third quarter… With over $60 million in cash… we’re operating from a position of strength” — Jennifer Slater, CEO .
  • “Gross margin expanded by 560 basis points to 16%, driven by a $4.4 million benefit from a stronger U.S. dollar, strategic pricing actions, and continued operational improvements” — Matthew Pauli, CFO .
  • “Over 90% of our U.S. sales volume is USMCA compliant… We estimate the annualized impact of recently announced U.S. tariffs to be $9–$12 million… We’ve moved quickly… adjusting logistic routes, engaging in pricing discussions… and shifting sources” — Jennifer Slater, CEO .
  • “Restructuring… in Mexico… combined with earlier actions in Milwaukee… now total approximately $5 million [annualized]… full run rate in the first quarter of fiscal 2026” — Matthew Pauli, CFO .

Q&A Highlights

  • Tariffs: Incremental Q3 impact was ~$0.8M; management expects to mitigate the full exposure through logistics changes, pricing recovery, and sourcing shifts .
  • Pricing vs labor savings: ~$2.5M pricing benefit in Q3 across keys/locksets and power access; restructuring savings will ramp, reaching ~$5M annualized across sites .
  • CapEx & Dividend: FY25 CapEx ~ $7.5M; ~$2–$3M in Q4; go-forward ~ $10M; dividend reinstatement not near-term given uncertainties .
  • Milwaukee facility sale: “Really pleased with the progress,” but no announcements yet; evaluating adjacent market opportunities after auto/transport addressable base .
  • Demand cadence: No major fluctuations; customers providing stable demand signals through the quarter .

Estimates Context

  • Q3 2025 S&P Global consensus: Revenue $140.836M*, Primary EPS $0.95*, each based on 1 estimate; actual revenue $144.082M and adjusted EPS $1.50; GAAP diluted EPS $1.32 — all beats. Expect estimate revisions higher on margins/EPS given pricing realization, FX tailwind, and restructuring savings trajectory .
    Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Margin inflection confirmed: 16.0% gross margin and 8.9% adjusted EBITDA margin signal sustained improvement from pricing, mix, FX, and cost actions — supports upward estimate revisions and multiple expansion potential .
  • Cash generation robust: $20.7M operating cash flow and $62.1M cash balance enhance flexibility amid tariff and macro uncertainty; watch for capital deployment once tariff visibility improves .
  • Tariff risk manageable: USMCA compliance and active mitigation (30% achieved) reduce impact; commercial recovery ongoing — monitor timing/quantum of recoveries and any volume effects .
  • Structural savings building: ~$5M annualized restructuring savings with full run-rate by Q1 FY26 underpin margin trajectory; near-term ES&A elevated from transformation investments .
  • Product mix shift: Continued higher-value content on existing platforms and new launches in Power Access/Latches; keys/locksets remain headwinds — track OEM program cadence and Stellantis volumes .
  • CapEx clarity: FY25 ~$7.5M with IT/equipment upgrades; go-forward ~ $10M suggests continued modernization without over-investment — supportive of FCF .
  • Potential catalysts: Continued tariff mitigation/recovery updates, facility sale execution, further pricing/mix gains, and inclusion in Russell indices enhancing liquidity (noted in June press release) .

Other relevant Q3 2025 press releases:

  • Announcement of Q3 release and call logistics (Apr 24) .
  • Results press release detailing Q3 financials and non‑GAAP reconciliations (May 8) .

Prior quarters for trend analysis:

  • Q2 2025 results: Revenue $129.9M; GAAP diluted EPS $0.32; adjusted EPS $0.65; adjusted EBITDA $8.0M; operating cash flow $9.4M .
  • Q1 2025 results: Revenue $139.1M; GAAP and adjusted diluted EPS $0.92; operating cash flow $11.3M .