Name: STRATTEC SECURITY CORP Q4 2025 Earnings Call
Start: 2025-08-15T13:00:00.000Z

Executive Summary

STRATTEC delivered a clean top-line and margin beat in Q4 FY25: revenue rose 6.3% YoY to $152.0M on pricing, demand and mix, with gross margin expanding 370 bps to 16.7%; adjusted EPS was $2.06 and adjusted EBITDA $13.0M . Versus S&P Global consensus, the quarter beat on revenue, EPS and EBITDA as detailed below (single-analyst coverage for EPS; two for revenue)*.
Cash generation and liquidity materially strengthened: Q4 cash from operations was $30.2M, ending cash at $84.6M; borrowings under credit facilities fell to $8.0M (JV revolver), leaving the company with ample dry powder for transformation and to buffer market softness .
Management highlighted near-term demand risk from North American auto production revisions (-5% to -6% in FY26) and a lull in key OEM launch cycles, but reiterated structural levers: price, volume from future launches, and operational improvements; long-term targets include 18%-20% gross margins and low-teens EBITDA margin .
Tariff headwinds are being mitigated: Q4 saw a $1.6M net tariff impact; management has “line of sight” to recover the majority of costs, though recoveries lag expenses; FY25 actions yielded ~$8M annualized pricing and ~$5M restructuring savings to support margins .
Potential catalysts: continued gross margin expansion despite macro tempering, sustained CFOA, tariff recoveries/pricing traction, and eventual capital return once predictability improves; risks center on NA build softness, Mexico labor inflation and recovery timing .

What Went Well and What Went Wrong

What Went Well
- “We delivered measurably improved results with stronger margins and cash flow,” including $8M in annualized pricing, $5M cost takeout and working capital velocity gains (CEO) .
- Gross margin expanded to 16.7% (+370 bps YoY) on FX tailwind (~$3.0M), restructuring savings ($1.3M), pricing and volume; adjusted EBITDA margin was 8.5% .
- Q4 cash from operations was $30.2M, full-year CFOA $71.7M; cash ended at $84.6M with no borrowings on the $40M company revolver, JV revolver borrowings at $8.0M .
What Went Wrong
- Despite margin expansion, GAAP net income and EPS declined YoY due to a difficult comp: prior-year Q4 SAE benefited from a $4.7M one-time engineering recovery; Q4 FY25 SAE also included higher professional fees, incentive comp and transformation investments .
- Tariffs and higher Mexico labor costs weighed: $1.6M net tariff impact and $1.1M higher labor costs in Mexico in Q4; tariff recoveries tend to lag expenses .
- Management cautioned FY26 revenue is “down to flattish” with industry production expected to decline 5%-6% and a lull in customer launch cycles; Mexico labor inflation is a H2 headwind .

Financial Results

Quarterly performance and trajectory

Metric	Q2 FY25 (Dec 29, 2024)	Q3 FY25 (Mar 30, 2025)	Q4 FY25 (Jun 29, 2025)
Net Sales ($M)	$129.919	$144.082	$152.013
Gross Margin %	13.2%	16.0%	16.7%
Operating Income ($M)	$2.134	$7.085	$8.502
Operating Margin %	1.6%	4.9%	5.6%
Net Income Attrib. to STRT ($M)	$1.319	$5.396	$8.267
Diluted EPS ($)	$0.32	$1.32	$2.01
Adjusted EBITDA ($M)	$8.0	$12.9	$13.0
Adjusted Diluted EPS ($)	$0.65	$1.50	$2.06

Q4 YoY comparison

Metric	Q4 FY24	Q4 FY25
Net Sales ($M)	$143.055	$152.013
Gross Margin %	13.0%	16.7%
Operating Income ($M)	$9.691	$8.502
Operating Margin %	6.8%	5.6%
Net Income Attrib. to STRT ($M)	$9.620	$8.267
Diluted EPS ($)	$2.39	$2.01
Adjusted EBITDA ($M)	$13.804	$12.987
Adjusted Diluted EPS ($)	$2.42	$2.06

Q4 FY25 actual vs S&P Global consensus

Metric	Actual	Consensus	Result
Revenue ($M)	$152.013	$143.508*	Beat*
EPS (Primary) ($)	$2.06*	$1.07*	Beat*
EBITDA ($M)	$12.987*	$9.527*	Beat*

Values marked with * retrieved from S&P Global.

Cash flow and balance sheet trends

Metric	Q2 FY25	Q3 FY25	Q4 FY25
Cash from Operations ($M)	$9.444	$20.720	$30.176
Cash & Equivalents ($M)	$42.625	$62.106	$84.579
Borrowings under Credit Facilities ($M)	$13.000	$13.000	$8.000
Inventories, net ($M)	$81.511	$75.591	$64.701

Drivers and commentary (Q4)

Sales growth drivers: $3.7M pricing, $4.1M demand, $1.2M net new launches, favorable mix .
Margin drivers: ~$3.0M FX benefit (≈210 bps), $1.3M restructuring savings; offset by $1.6M net tariffs and $1.1M higher Mexico labor; tariff recovery lags .
SAE: $16.9M vs $8.9M prior-year (Q4 FY24 included $4.7M one-time ED&D recovery); higher professional fees, $2.2M incentive comp, transformation costs and talent investments .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance/Commentary	Change
Revenue	FY26	None	Directionally “down to flattish” vs FY25 as NA auto production projected -5% to -6% and launch lull	New qualitative outlook
Gross Margin	LT	None	LT target 18%–20%	New
EBITDA Margin	LT	None	LT target low-teens	New
SAE / ES&A	Ongoing	~11% of sales	Maintaining ~11% of sales, while investing in transformation and incentive comp	Maintained
Tariffs	FY26	None	Annual cost increase $5–$7M before mitigation; majority recovery expected but lagging	New
Pricing	FY25 / FY26	None	~$8M annualized pricing executed; tailwind especially in 1H FY26	New
Restructuring Savings	FY26 run-rate	None	~$5M annualized savings from FY25 restructuring actions, full run-rate in Q1 FY26	New
Working Capital	LT	Target 15%	Primary working capital currently just over 16%; target remains ~15%	Maintained
Inventory	FY26	None	Raise by ~$5M from Q4 level to support on-time delivery	New
Capex	FY25/FY26	≈$7.5M FY25	Around $10M normalized run-rate; invest in modernization and IT	Maintained/clarified
Tax	FY26+	None	~$10M deferred tax asset benefit as R&D expensing no longer deferred for tax; lowers cash taxes	New
Capital Returns	LT	None	Consider shareholder distributions when business predictability increases	New
Dividend	Near term	None	Not prioritized amid uncertainty; balancing internal/external allocation	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2, Q3 FY25)	Current Period (Q4 FY25)	Trend
Tariffs & Mitigation	Estimated $9–$12M annual cost pre-mitigation; ~30% mitigated; actions on logistics, pricing, sourcing	Q4 net impact $1.6M; majority recovery expected; recovery lags	Improving mitigation; lag persists
Pricing Power	~$8M annualized pricing captured starting Q3	$3.7M Q4 pricing contribution; 1H FY26 tailwind	Sustained
Restructuring/Cost	Milwaukee/Mexico actions; ~$5M annual savings; partial Q3 benefit	$1.3M Q4 savings; full run-rate in Q1 FY26	Ramp to full benefit
Product Mix/Power Access	Growth in Power Access and latches; keys/locksets mature	Mix favorable; demand/mix aided Q4	Positive mix
Macro/NA Production	Monitoring; customer inventory stable in Q3	FY26 NA production -5% to -6%; launch lull	Softer near term
Labor/Mexico Inflation	20% mandate cycled; ~12% merit in CY25	Higher labor costs in Mexico weighed; H2 FY26 headwind	Ongoing headwind
Balance Sheet/Cash	$62.1M cash in Q3; ~$47M availability	$84.6M cash; company revolver undrawn; JV borrowings $8.0M	Stronger
Digital Key/Aftermarket	Broadening portfolio and customers	Focus on digital key; aftermarket ~7% of revenue; subs largely OEM-held	Strategic focus

Management Commentary

CEO on transformation and FY25 progress: “We executed over $8 million in new annualized pricing, restructured our operations to take out $5 million in costs and drove significant improvement in our working capital velocity and cash flow focus… While still early in our business transformation, I am encouraged by the progress we have made over the last twelve months.”
CFO on margin drivers and tariffs: “Gross margin expanded by 370 basis points to 16.7%... benefit from a stronger U.S. dollar, strategic pricing… and $1.3 million of restructuring savings… more than offset $1.6 million of net tariff expenses… we have line of sight to recover the majority of the cost, but the recovery… will lag the associated expenses.”
CFO on FY26 context: “Current third-party industry projections estimate that North American automotive production for our fiscal 2026 will be lower by about 5% to 6%… We believe the business… is capable of achieving gross margins in the 18% to 20% range… and [a] low teen EBITDA margin [long term].”

Q&A Highlights

Transformation runway: Management is “still in the early innings,” moving from low-hanging fruit to longer-term structural changes; refocusing engineering capacity toward power access and digital key; considering portfolio reshaping (e.g., de-emphasizing switches) .
Margin trajectory: Longer-term EBITDA margin in low-teens, underpinned by price, volume from new launches, and operational improvements; incremental/decremental margins 25%-30% .
Cash usage and capital allocation: Holding elevated cash amid production uncertainty and transformation needs; capital returns considered once predictability improves .
Digital key and aftermarket: Physical fob remains important; digital key development continues; subscription revenues largely captured by OEMs today; aftermarket ~7% of revenue with opportunity to expand .
Working capital and inventory: Primary working capital improved to just over 16% of sales (target 15%); inventory likely needs ~$5M increase to support deliveries .

Estimates Context

Q4 FY25 results beat S&P Global consensus across revenue, EPS and EBITDA: Revenue $152.0M vs $143.5M*, EPS (Primary) $2.06 vs $1.07*, EBITDA $13.0M vs $9.53M* (limited coverage: 1 EPS estimate; 1 revenue estimate for Q4)*.
Forward snapshot (as context): Q1 FY26 consensus (post quarter) shows revenue $144.9M* and EPS $1.48*; note that consensus breadth is thin (2 revenue, 1 EPS)*. Modeling may need to reflect softer NA production in FY26, pricing tailwind in 1H, labor inflation in H2, and lagging tariff recoveries .