Strattec Security Corporation Q2 FY2026 earnings call

• Delivered strong second quarter despite challenging macro environment including supply chain issues, moderating automotive production, and foreign exchange pressures.
• Sales growth driven by pricing, favorable sales mix, higher content value, new program launches, and tariff recovery.
• Implemented a voluntary retirement program and other restructuring actions expected to generate $3.4 million in annualized savings.
• Generated $14 million in cash from operations in Q2, with year-to-date cash flow at $25 million. Strong balance sheet provides flexibility for investing, managing market volatility, and exploring strategic opportunities.
• Focus on driving process improvement, institutionalizing new practices, and leveraging the team to deliver innovation and agility.

Sales grew 6% to $137.5 million in the second quarter. Gross margin was 16.5% in the quarter, expanding 330 basis points over the prior year. Net income was $4.9 million, nearly quadrupling year-over-year, and adjusted earnings per share grew 163% to $1.71. Operating cash flow in the second quarter was $13.9 million, with year-to-date cash flow at $25 million. The company has a strong balance sheet with $99 million in cash and total debt of $2.5 million. Year-to-date, gross margin expanded 350 basis points to 16.9%, driven by pricing actions, higher production volumes, and restructuring savings, offset by elevated Mexico labor costs and unfavorable foreign exchange.

• Sales expected to be down approximately 3% to 4% year-over-year in the second half.
• Gross margin has been raised to the 15% to 16% level and is advancing toward the gross margin goal.
• Selling, administrative, and engineering expenses (SAE) are expected to be within the 10% to 11% range in the back half of the year.
• Capital expenditures for fiscal 2026 are expected to be less than $10 million.

• Supply chain challenges for the industry.
• Moderating automotive production.
• Foreign exchange pressures.
• Elevated Mexico labor costs.
• Unfavorable foreign exchange impacting gross margin.

Q: Could there be revenue pushed from Q2 into Q3 due to supply chain disruptions?

A: There was a fire with a supplier and chip challenges, but customers worked around them with minimal impact to sales in the quarter.

Q: How should we think about selling and administrative expenses in the second half?

A: Expect SAE to be closer to the 10% to 11% range in the back half, with merit in Mexico expected to be less than historically.

Q: When does the $3.4 million in savings from the early retirement plan hit the bottom line?

A: Only about $400,000 benefit in the current quarter, with full phase-in around $800,000 per quarter by the fourth quarter.

Q: What about free cash flow pushback?

A: Intentionally building inventories to improve service delivery was a headwind, and restructuring/business transformation costs will impact third quarter cash flow.

Q: Conversations with potential new customers in North America?

A: Focus on access products and digital key, with long sales cycles in automotive; discussions starting now for model year launches starting from '29 or longer term.

Q: Impact of Tesla's door handle issue on prospective platforms?

A: No impact on planned future products, but reinforces need for secondary mechanical locking mechanisms.

Q: Product line review update?

A: Deprioritized switch business, heavily focused on power access products, drive units, latching mechanisms, door handles, and digital key technology.