The Eastern Company Q3 FY2025 earnings call

• Proactive changes made to optimize workforce, including reducing SG&A, reorganizing Big 3 operational footprint, and selling an underperforming business unit, resulting in $1.8 million savings in the quarter.
• Repurchased approximately 118,000 shares (almost 2% of outstanding shares) and reduced debt by $7 million, entering a new $100 million revolving credit facility.
• New leadership team in place, implemented restructuring and plant closure program, focusing on cost containment and operational improvements to make operations more efficient and profitable.
• Focus on product innovation, expanding into new end markets, and diversifying customer relationships to capture emerging opportunities.
• USPS vehicle program is a bright spot, with Eberhard benefiting from it, offsetting softness in the truck market.

Revenue from continuing operations for Q3 was $55.3 million, down 22% from Q3 of the prior year. The decline was primarily due to decreased sales of returnable transport packaging products ($9.9 million decrease) and truck mirror assemblies ($6.4 million decrease). Backlog as of September 27, 2025, decreased $23.6 million or 24% to $74.3 million, driven by decreased orders for returnable transport packaging products ($15.2 million), latch and handle assemblies ($4.7 million), and truck and mirror assemblies ($3.6 million). Gross margin as a percentage of net sales was 22.3% for Q3 2025 compared to 25.5% for the prior year period, impacted by increased raw material costs and reduced volumes.

• Saw marginal improvements in Q4, but truck industry forecasts soft first half of 2026 with incremental improvements towards the end of 2026.
• Expect model launches to increase next year, with backlog already improving for Big 3.

• Market downturn in Class 8 truck and automotive segments.
• Uncertainty regarding the duration and extent of the freight recession and truck market recovery.
• Impact of changing dynamics in end markets on business operations.

Q: So a few questions from my side. This is Garvit from Singular Research. Firstly, on the gross margins, you have seen contractions during this quarter. So is it temporary? Or should we expect structurally lower margins going forward as well?

A: Yes. There certainly was a mix element associated to the gross margin reduction within the quarter, especially comparing to the third quarter of prior year. So I'd say, in general, it's -- I won't call it a one-off, but I think the trend definitely leans towards improved gross margins in the future back towards maybe the norm that we've seen in the past. But Nick, maybe you want to expand upon that...

Q: Okay. Okay. Understood. And then on the overall demand side, you have indicated that you're seeing some recovery, but if you can just throw some more light on -- is it -- are you seeing early signs of recovery in the heavy-duty truck market? Or do you expect volumes to bounce back in the coming quarter and going into FY '26? Is that something that we should sort of take forward from your comments?

A: Yes. So I'll take this one, Nick. I think we certainly have seen some bounce back in the fourth quarter. That being said, we haven't seen volumes begin to return to the more historical norms. We certainly watch this very closely, as I'm sure you do as well. Right now, the truck industry, the heavy truck industry is forecasting some recovery next year. We're seeing some in the fourth quarter here. We're not sure if that's transitory associated with some of the changes in tariffs or not, but we are seeing some limited additional volume in the fourth quarter. Right now, forecast that we've received show a soft first half of 2026. That's what we're planning for and then some incremental improvements towards the end of 2026. That being said, we frankly don't know. We are well positioned to react as our customers need us to. We're ready to ramp up. And if things are going to remain difficultly slow for the next few months, we are positioned -- we have positioned our factories to operate in that mean as well. That being said, yes, we've seen some limited volume improvements here in October, and we're expecting that through November, and we'll kind of see what happens in December and then in the beginning part of the year.

Q: Okay. Got it. And then on the -- I think last quarter, you had mentioned about the USPS vehicle program, before contract that you had won from the government. Is there any update on that? How are you seeing the revenues ramping up there?

A: Yes. That program certainly has been a bright spot. I know we've spoken about that many quarters in the past. I left that out of this note just because it has ramped up nicely. It's been an important part of our overall business. And for Eberhard, it's this last quarter actually that Oshkosh became our largest customer for the quarter, recognizing -- it's not going to stay that way, but it's become an important part of our overall business, and it's been a nice project for us that has taken a while for it to come to fruition, but we're in full production. It's going to run full through next year, and we'll see as the contract continues, how long that one will run, but it's been a nice one for us for sure.

Q: Okay. So is it possible for you to quantify the revenue contribution from the program and any -- and would we see a material impact on revenues in FY '26 as well from this program?

A: In terms of specific revenue on that, I would probably pause to be overly specific on that, just not to reveal too much in a public setting. I'm certainly happy to answer some questions for you offline as it pertains to that. If you take Eberhard though, as an important business within Eastern, Eberhard has enjoyed some good volumes with the -- on that U.S. Postal Service program, but at the same time, have another important market segment for them is the Class 8 truck market. And when you think of truck market, specifically the sleeper cab portion of the truck market, the levers and latches and locks and things of that nature, are an important part of Eberhard's business. That has obviously been a slow segment for us, as we've spoken about in these prepared remarks, but also in the past, we've seen that slow down. We expect that to bounce back in the future just as the truck market will bounce back. But for Eberhard's specifically, the Postal Service program has been a nice offset to the softness of the truck market.

Q: Okay. Okay. Understood. And then lastly, on the Big 3, has there been any increase in the pace of model refresh cycles? Have you seen pace increasing? Or has it slowed down further? And if so, are you seeing any impact on the order flow there?

A: Yes. It slowed -- it has been a very slow quarter. Really, we've had 2 material impacts to our business within the quarter from a negative standpoint. One was the truck market and then the other was the automotive model changes. So that part of our market in the third quarter of our business has been significantly negatively impacted. If you look back, really the number of models launched this year is at a historical low for a very long time going back. And for that reason, we are forecasting and already seeing an increase in model launches for next year and beginning right now. We're a number of months ahead of the actual launch is where we tend to be impacted favorably. And we're already starting to see specific to Big 3, our backlog improve there. So more to come, certainly more to come with that, and we'll have to see where it goes. But the sort of change in direction from EVs in this year certainly impacted the total launches, and we've had to make some adjustments accordingly for that. But yes, we are expecting that to improve some next year, and we'll be prepared for that as it comes.