Eastern Company (The) (EML) research, news, and more from GeoInvesting

Company description

Mon, 16 Oct 2017 15:43:14 GMT

The Eastern Company manufactures and sells industrial hardware, security products and metal products from over six United States operations and seven foreign subsidiaries. The Company maintains over 13 physical locations. It operates through three segments: Industrial Hardware, Security Products and Metal Products. The Industrial Hardware segment consists of Eberhard Manufacturing, Eberhard Hardware Manufacturing Ltd., Canadian Commercial Vehicles Corporation, Composite Panel Technologies, Eastern Industrial Ltd. and Sesamee Mexicana, S.A. de C.V. The Security Products segment, made up of Greenwald Industries, Argo Transdata, Illinois Lock Company/CCL Security Products, World Lock Company Ltd., Dongguan Reeworld Security Products Ltd. and World Security Industries Ltd., is a manufacturer of security products. The Metal Products segment, based at the Company's Frazer & Jones facility, is a producer of expansion shells for use in supporting the roofs of underground mines.

Research

Wed, 13 Mar 2024 14:34:48 GMT

EML Q4 2023

Sales of $67.0 million vs $69.10 million
EPS of $0.56 vs $0.11

EML at one point held a position in our model portfolios. Now, under a new CEO, progress is being made towards the focus on core product offerings, as he continues to unwind some of the negative fallout from acquisitions consummated by prior management. At one point, it appeared that the company was on track to generating earnings per share of well over $3.00. If they can get back to that run rate, we can easily see the stock eclipsing over $40. The stock is definitely worth closely tracking again.

Research

Wed, 15 Mar 2023 13:49:28 GMT

Removing EML from all model portfolios

Unfortunately, the activist management team has not been able to affect a consistent growth or overly impressive acquisition strategy since they became involved in 2017. Because revenue continues to increase, we will continue to monitor if margins can improve to put EPS back on a growth track.

Eastern Company (NASDAQ:EML) ($21.02; $130.6M market cap), an industrial hardware manufacturer, announced Q4 2022 results:

Sales of $69.1 million vs $59.6 million in the prior year
Non-GAAP EPS of $0.11 vs $0.65 in the prior year

Key Takeaways:

Margins are being pressured
Backlog is down
The fourth quarter underperformance explains the reasons for the abrupt CEO change in January 2023.

Research

Tue, 08 Nov 2022 14:58:17 GMT

Eastern Company (NASDAQ:EML) ($21.10; $131.1M market cap), an industrial hardware manufacturer announced Q3 2022 results:

Sales of $71.6 million vs $63.8 million in the prior year
Non-GAAP EPS of $0.61 vs $0.54 in the prior year

“This is the third time this year that we set a record quarterly sales level for Eastern. We believe this sustained growth demonstrates that our businesses are effectively executing on the very favorable long-term demand trends across our core markets. Strong orders and deliveries of returnable transport packaging at Big 3 Precision account for most of the growth in the quarter, compared to the same period last year. Growth in our transport packaging business is the result of our recent investments in this business and the increase in new vehicle launches by OEMs. According to Bank of America, OEMs expect to launch 245 new models during 2023-26, or an average of 61 per year. This rate of vehicle launches is more than 50% above the average number of models launched per year between model years 2003 and 2022.”

Balance sheet and buyback

“We repaid nearly $3 million of debt and repurchased over 10,000 shares of our common stock in the third quarter of 2022, both of which also reflect on our confidence in our strong liquidity. Moreover, we believe that we are prepared for a rising interest rate environment, with nearly 55% of our term debt locked in at a fixed interest rate of 3.19% through an interest rate swap agreement."

Research

Thu, 20 Oct 2022 14:42:41 GMT

Eastern Company (NASDAQ:EML) ($19.46; $120.9M market cap), an industrial hardware manufacturer, announced it has sold its Argo EMS business. Terms of the transaction were not disclosed.

“In August of last year, we announced our intent to divest our non-core businesses and began reporting these businesses as discontinued operations. With the transaction announced today, we have completed the sale of all non-core businesses…

… the divestiture of Argo will further streamline our portfolio of businesses and build scale in our largest businesses, which we believe will accelerate Eastern's growth and strengthen our operating margins. With the sale of Greenwald Industries and Frazer & Jones, which we completed last year, this transaction further strengthens our focus on our three core businesses."

Research

Tue, 09 Aug 2022 04:00:00 GMT

Eastern Company (NASDAQ:EML) ($22.25; $138.8M market cap), an industrial hardware manufacturer announced Q2 2022 results:

Sales of $69.5 million vs $61.2 million in the prior year
Non-GAAP EPS of $0.59 vs $0.44 in the prior year

“This is the second time this year that we set a new record quarterly sales level for Eastern. We believe this sustained growth demonstrates that our businesses are effectively executing on the very favorable long-term demand trends across our core markets. Strong orders and deliveries of returnable transport packaging at Big 3 Precision account for most of the growth in the quarter, compared to the same period last year…

…Overall, our balance sheet remains solid. Our liquidity continues to improve, demonstrated by a very strong current ratio of 3.0x for the second quarter of 2022. We repurchased 29,762 shares of our common stock in the second quarter of 2022, which reflects our strong liquidity. Moreover, we believe that we are prepared for a rising interest rate environment, with over 50% of our term debt locked in at a fixed interest rate through an interest rate swap agreement.

We are optimistic about the remainder of this year and our longer-term future. Our team is committed, resilient, and prepared for both the challenges and opportunities that lie ahead."

We have been waiting for the company‘s results to start benefiting from adjustments management has made to deal with COVID related disruptions and inflationary pressures. Before the pandemic, management said the company was capable of delivering earnings per share of over $3.00. At the current quarterly run-rate, EPS is tracking at an annual run rate of $2.40. Something to note is that the company is probably leaner than it was prior to the pandemic, so that we could foresee a situation where management’s expectations of its previous earnings per share room may have increased.

We will join the conference call today at 11 AM EST to see if management offers any InfoArb opportunities.

Research

Tue, 10 May 2022 19:16:32 GMT

Eastern Company (NASDAQ:EML) ($22.25; $138.8M market cap), an industrial hardware manufacturer announced Q1 2022 results:

Sales of $69.0 million vs $61.7 million in the prior year

Non-GAAP EPS of $0.46 vs $0.69 in the prior year

"Net sales from continuing operations for the first quarter of 2022 increased 12% compared to the first quarter of 2021, a new record quarterly sales level for Eastern. We believe this sustained growth demonstrates that our businesses are effectively executing on the very favorable long-term demand trends across our core markets. Sales grew as a result of the increasing momentum of our recently launched truck mirror program and strengthening demand from distributors and aftermarket customers. ACT Research, a commercial vehicle and transportation markets research firm, estimates that Class-8 truck builds will reach 220,000 in 2022, an increase of 12% over 2021, and projects that 265,000 new Class-8 trucks will be built in 2023. Moreover, the increase in new automotive product launches, including several electric vehicle launches, drove an approximately 16% increase in sales of returnable transport packaging products in the first quarter of 2022 compared to the first quarter of 2021. We expect demand for returnable transport packaging to continue to increase throughout the remainder of this year and beyond, as the number of planned new vehicle launches grows to 53 in 2023 and 63 in 2024, according to BofA Global Research."

"Our backlog at the end of the first quarter of 2022 reached $85.8 million, an increase of 23% over the backlog at the end of the first quarter of 2021. The increase in backlog was primarily due to increased demand from our commercial vehicle and truck accessories customers and reflects a return to strong demand for our products across most of our core markets."

Will be on conference call at 11am EST to see if management offers any information arbitrage opportunity.

We particularly want to get a read on the timing of any positive impact on their gross profit due to price increases that the company initiated in response to rising costs of goods amid inflation. For example, even though revenue was up when in Q1, gross profit was down due to inflationary pressures.

“The growth rate of raw material costs accelerated in the first quarter of 2022. For example, the cost of nickel increased by 41% between the first quarter of 2021 and the first quarter of 2022; the cost of most common forms of cold-rolled steel increased by 21%, and copper and zinc costs increased by 22% and 33%, respectively. We have initiated new rounds of price increases for our customers in each of our businesses in order to mitigate the impact of these most recent cost increases. These new prices go into effect in May and June of this year."

Furthermore, the company has been saying for some time that they’ll be increasing prices, but they seem to continue to be behind the curve on reacting to inflationary pressures. While price increases are expected to offset some of the inflationary price increases, that will not be able to mitigate the entire inflation related cost.

Research

Fri, 18 Mar 2022 15:03:13 GMT

Eastern Company (NASDAQ:EML) ($24.25; $152.1M market cap), an industrial hardware manufacturer announced Q4 2021 results:

Sales of $59.6 million vs $50.6 million in the prior year
Non-GAAP EPS of $0.65 vs $0.76 in the prior year

“While the war in Ukraine is once again driving up the cost of some raw materials, we are not yet seeing costs increase to 2021 levels. Moreover, we believe that the actions we took in 2021 will mitigate some of the impact of higher raw material prices. We also moderated late deliveries through active sourcing and supply chain management, and we maintained production levels with creative recruiting and retention practices. In all, I believe our execution in 2021 underscores the quality of the leadership team we have built…

… We expect to reduce the current level of working capital in the coming quarters and believe that our solid balance sheet, proceeds from divestitures, and ample liquidity will fuel an acceleration in the growth of our three largest businesses.

Our backlog at the end of 2021 reached $82.8 million, an increase of $18.1 million, or 28% over the backlog at the end of 2020. The increase in backlog was primarily the result of increased demand from our commercial vehicle and truck accessories customers and reflects a return to strong demand for our products.”

Research

Thu, 11 Nov 2021 18:04:49 GMT

Eastern Company (NASDAQ:EML) ($24.38; $152.8M market cap), an industrial hardware manufacturer announced Q3 2021 results:

Sales of $63.9 million vs $55.7 million in the prior year
EPS of $0.61 vs $0.51 in the prior year

“Strong demand for truck accessories, Class-8 trucks, and recreational vehicles, as well as the launch of new products and solutions, including a new Paccar main mirror program, contributed significantly to sales growth in the quarter.

Our backlog at the end of the third quarter reached $83.1 million, an increase of $25.4 million, or 44% over the backlog at the end of the third quarter of 2020. The increase in backlog was primarily the result of increased demand from our commercial vehicle and truck accessories customers. As of November 5, 2021, our backlog has continued to grow.”

In yesterday’s Monthly Open Forum (link to be provided later today), we stated that we wanted to see if management had addressed supply chain and inflation issues that were negatively impacting gross margins before making a decision to possibly change our model portfolio ranking on the stock from a 1 to a 1.5. At this time we will not make this adjustment, as it seems management swiftly tackled these issues.

Research

Fri, 13 Aug 2021 17:38:47 GMT

Eastern Company (NASDAQ:EML) ($31.48; $196.8M market cap), an industrial hardware manufacturer announced Q2 2021 results:

Sales of $61.2 million vs $39.5 million in the prior year
EPS of $0.44 vs $0.33 in the prior year
Divested its diversified product segment, using proceeds to reduce net debt leverage
Backlog of $89.2 million vs $55.3 million in the prior year

“Sales from continuing operations for the second quarter of 2021 increased 55% compared to the second quarter of 2020, due to strong demand across a broad range of our commercial vehicle and industrial markets, including Class 8 trucks, service bodies and light trucks, recreational vehicles, and electric vehicle manufacturers. While the economic recovery has accelerated demand, we also attribute our growth to strong execution of the launch of new products and solutions. Order flow remained robust, and our backlog at the end of the second quarter 2021 reached $89.2 million, an increase of $33.9 million, or 61% over the backlog at the end of the second quarter of 2020...

...Our balance sheet continues to strengthen. As of July 3, 2021, we have cash and cash equivalents of $18.5 million, including $1.6 million cash and cash equivalents classified as assets held for sale, and an untapped $20 million revolving line of credit. As of that date, our net leverage ratio is 2.3x, and our fixed charge coverage ratio is 2.7x, both of which comfortably comply with our bank covenants of 4.25x and 1.25x, respectively. Moreover, we expect that the vast majority of the proceeds from any potential divestiture will further reduce our net leverage. We believe that our strong balance sheet, potential proceeds from divestitures, and ample liquidity will fuel the accelerated growth of Engineered Solutions businesses."

It looks like the sale of the Diversified product line may have been prudent. While it was contributing roughly $12 million a quarter in topline sales, it operated at a loss in 2020. Investors may view the sequential decrease in the topline as a negative.

However, adjusting for the sale of the diversified product segment, sales would have been on par with Q1 2021. The bigger concern investors may have with the quarter is the sequential decrease in gross margins of 1%, which adversely affected EPS by roughly $0.12. But, it seems management has addressed this issue:

“Our businesses have been able to pass on a portion of these increases, but the impact of unrecoverable costs and the lag in our price increases have compressed our gross margin by several hundred basis points in the second quarter of 2021. We believe that increased stability in the prices of many of our raw materials and shipping rates will moderate the pressure on our gross margins in the future."

The conference call will be held on Monday, August 16, 2020, at 11 AM EST.

Research

Mon, 26 Apr 2021 04:00:00 GMT

Eastern Company (NASDAQ:EML) ($24.8; $155.8M market cap), an industrial hardware manufacturer announced Q1 2021 results:

Sales of $73.1 million vs $65.3 million in the prior year
Non-GAAP EPS of $0.71 vs NG EPS of $0.46

Over the last several months we have been saying we think an inflection point of growth is just around the corner for EML. Well, it looks like the company may have turned the corner as COVID-19 woes are dissipating and previous acquisitions intended to expand the company's market for its legacy products and introduce new products are paying off. We continue to believe that the upside potential for EML shares is significant

“Sales in the first quarter of 2021 increased 12% compared to the first quarter of 2020, primarily due to product launches at Big 3 Precision and Velvac, as well as strong demand across a broad range of commercial vehicle markets, including class 8 trucks, service bodies and light trucks, recreational vehicles, and electric vehicle manufacturers. Additional sales from the acquisition of Hallink, completed in the second quarter of 2020, partly offset the loss of sales from the divestitures of Canadian Commercial Vehicles Corporation and Sesamee Mexicana in the second and fourth quarters of last year, respectively. As a result of strong demand across many of our markets, our backlog at the end of the first quarter 2021 remains strong at $98.0 million, an increase of $24.4 million, or 33% over the backlog at the end of the first quarter 2020."

You can see our full coverage on EML here.

Research

Tue, 16 Mar 2021 16:39:05 GMT

Eastern Company (NASDAQ:EML) ($26.49; $165.3M market cap), an industrial hardware manufacturer announced Q4 2020 results:

Sales of $60.4 million vs $68.7 million in the prior year
Non-GAAP EPS of $0.74 vs $0.79 in the prior year

During the fourth quarter, demand across the vast majority of our product and service offerings accelerated, marking two quarters of strong sequential growth from the severe contraction during the second quarter. Coupled with this recovery in demand, our recent acquisitions and divestitures expedited growth in our adjusted earnings per share and cash flow. The majority of our markets rebounded to prior year sales levels in the fourth quarter, with noticeably strong growth within our Class-8 truck, motorhomes, truck accessories, and consumer packaging markets. In addition, we were awarded new sales opportunities with several manufacturers of electric vehicles. We continue to believe that the rapidly growing electric vehicle market will provide us with material growth opportunities. In the fourth quarter, sales growth in these markets was not sufficient to offset the delay in many new automotive launches, lower sales to mining customers, and the loss of sales from divestitures.

The strength in our backlog at the end of the year and heading into 2021 indicates sustained growth of our businesses and we are off to a strong start in 2021. The value of our backlog of orders was $85.0 million at the end of fiscal 2020, as compared to $71.2 million at the end of fiscal 2019.”

You can see our full coverage on EML here.

Research

Tue, 26 Jan 2021 18:37:59 GMT

Eastern Company (NASDAQ:EML) ($24.6; $153.5M market cap), an industrial hardware manufacturer announced a new appointment at Big 3 Precision to capitalize on growth opportunities. The company announced the hiring of Nick Lentine to the position of president:

“Nick brings more than 25 years of commercial and operational experience in the automotive and commercial vehicle markets, including the last 10 years at Faurecia, a top ten global automotive supplier of technologies for sustainable mobility…

Big 3 Precision's markets are entering into a transformational stage as a result of the accelerated introduction of electric vehicles, continued adoption of manufacturing automation, and exponential growth in product digitization,"

You can see our full coverage on EML here.

Research

Tue, 10 Nov 2020 18:36:11 GMT

Eastern Company (NASDAQ:EML) ($22.59; $140.9M market cap), an industrial hardware manufacturer, announced Q3 2020 results:

Sales of $65.8 million vs $60.6 million in the prior year
Non-GAAP EPS of $0.54 vs $0.79 in the prior year

“These past two quarters have demonstrated the resilience of our businesses through challenging economic conditions, and our business is recovering from the impact of the Covid-19 pandemic on the broader economy. While navigating the short-term operational and demand challenges, we remain focused on our vision to build long-term shareholder value. For example, we closed on the acquisition of Hallink in the third quarter of 2020, and we started the combination of our Eberhard and Illinois Lock Company operations, building on the strengths of both organizations to create a leaner, more innovative, and more competitive business. The combination will also affect our fourth quarter 2020 reporting. We currently have three reportable segments, but, starting in the fourth quarter of 2020, we will report in two segments: Engineered Solutions and Diversified Products."

Research

Fri, 07 Aug 2020 19:17:15 GMT

Eastern Company (NASDAQ:EML) ($18.20; $113.5M market cap) - We are strongly considering adding aggressively to our long position in this industrial hardware manufacturer due to management’s move to target new COVID-19 business opportunities. Recall that we added to our long position on June 5, 2020

Management has stated that the business is running on an annual pro-forma run rate of $3.09 when the domestic economy stabilizes. We think the company can eventually trade at P/E multiple of 15 on that guidance, which would imply a price target of $46.35

We also recently added the stock to our 8th Buy on Pullback portfolio on May 18, 2020.

Yesterday, the company announced the reorganization of two of its largest businesses.

"The Eastern Company is pleased to announce the combining of Eberhard Manufacturing and the Illinois Lock Company into a single company that will be a leader in access and security hardware. "These two businesses bring a cumulative 230 years of technical sales, engineering, design and manufacturing experience. The combined company will build critical mass within our target markets, deepen our presence with key customers, and accelerate growth by integrating the complementary markets and differentiated products into one industry leading business," said Mr. Vlak, Eastern's President & CEO.

"The combined company will also allow us to optimize our manufacturing footprint, streamline our supply chain and capture synergies across our current operations. We expect to complete the process by the second quarter of 2021 and believe that the synergies from this combination will contribute significantly to our bottom line in 2021," according to Mr. Vlak.

Last week we highlighted the company’s Q2 2020 results, which despite the significant decrease in revenues due to a number of customer closures in April and May 2020, the company posted a strong non-GAAP EPS number for the quarter.

See our full Q2 2020 recap here which shows how the company pivoted some of its subsidiaries’ focus to address business opportunities arising from COVID-19.

Highlights from the conference call:

“...the scope, depth and speed of our response to these challenges underscores the resilience of our business. We addressed the impact of customer closures by pivoting to opportunities. For example, Big 3 Precision manufactured frames for emergency hospital beds that were deployed to field hospitals across the country. Big 3 Precision also ramped up sales to manufacturers of electric vehicles, while other customers remain closed...

...Our Security Products segment took advantage of growth in outdoor recreational equipment, a market in which we've invested in recent years. The market for outdoor recreational products boomed during the second quarter, as people looked for safe activities near home. For example, domestic cycling sales reached $1 billion in April of this year, a new record according to the NPD group...

...At the end of the quarter, we began to see other bright spots, including renewed strength in the recreational vehicle market and the return of the Class 8 truck market. According to recent Ipsos findings, 46 million Americans plan to take an RV trip in the next 12 months. And according to the RVIA, an industry association, shipments of motorhomes grew from 694 in March to 3,023 in June. Moreover, as you've seen, according to ACT, an industry group, preliminary North American year-over-year net Class 8 truck orders rose 23% to 16,000, which is the first year-over-year rise since January."

Research

Fri, 31 Jul 2020 19:16:20 GMT

Eastern Company (NASDAQ:EML) ($16.48; $102.6M market cap), an industrial hardware manufacturer, announced Q2 2020 results:

Sales of $48.8 million vs $61.4 million in the prior year
Non-GAAP EPS of $0.38 vs $.40 in the prior year

"Sales in the second quarter of 2020 were $48.8 million, a decrease of 21% compared to the second quarter of 2019. The decline in sales compared to the same period in 2019 was partly offset by the inclusion in the 2020 period of Big 3 Precision, which we acquired in August 2019. The reduction in sales was primarily due to the mandated and voluntary closure of many of our customers' operations, primarily in April and May of 2020. Many of our customers closed their operations and stopped receiving shipments in response to concerns about employee health and safety during the COVID-19 pandemic. We estimate that we lost more than a cumulative 1,600 shipping days to approximately 80 customers in the second quarter due to these temporary closures.

In the second quarter, sales to electric vehicle manufacturers and military equipment producers provided a bright spot, as our investments in these markets continued to deliver growth. Similarly, sales to and orders from manufacturers of consumer sporting and recreational goods markets started to rebound towards the end of the second quarter...

...The numerous actions that we have taken to control expenses have allowed our businesses to withstand a significant economic downturn. Among other savings, we reduced our budgeted spending on sales and administrative expenses by more than 20% in the second quarter of 2020

Guidance:

“We are navigating a rapidly evolving economic environment, but this past quarter has demonstrated the resilience of our businesses. While managing the short-term operational and demand challenges, we remain committed to our vision to build long-term shareholder value. When we acquired Big 3 Precision, we shared our pro forma annual earnings of $3.09 per fully diluted share, reported our 10Q dated November 7, 2019, which we believe remains an appropriate performance goal for the Company when the domestic economy stabilizes."

Despite the significant decrease in revenues due to a number of customer closures in April and May 2020, the company posted a strong non-GAAP EPS number for the quarter. We are very interested to learn more about the EV angle and if they can find other COVID-19 related opportunities like they did with manufacturing hospital bed frames this past quarter.

Research

Wed, 29 Apr 2020 17:36:24 GMT

Eastern Company (NASDAQ:EML) ($19.44; $121.1M market cap), an industrial hardware manufacturer, announced Q1 2020 results:

Sales of $65.3 million vs $60.9 million in the prior year
Non-GAAP EPS of $0.46 vs $0.43 in the prior year

“Despite ongoing uncertainty across our end markets and the macro-environment, we believe that our businesses are well positioned and will prove to be resilient once economic activity rebounds” said Mr. Vlak. As of April 29, all but two production facilities are operating and, at this time, the majority of our customers are expected to re-open as soon as May 4. Our backlog remained robust at the end of the first quarter. We are confident that the numerous actions that we have taken to control expenses position our businesses to withstand a significant and potentially more prolonged economic downturn. Actions that we have taken to date include the suspension of all hiring of salaried positions, cessation of discretionary spending, temporary reduction in work hours, initiation of furloughs, cancellation of certain merit-based salary increases, and a limitation on capital spending to only critical maintenance, safety, and regulatory projects,” remarked Mr. Vlak.”

Research

Mon, 02 Mar 2020 13:36:31 GMT

Eastern Company (the) (NASDAQ:EML) (Industrial Hardware Manufacturer) reported Q4 2019 EPS of $0.77 vs $0.70 on 21% topline growth. Recent acquisitions helping fuel growth; some supply chain issues due to coronavirus, but state conditions have been improving.

After taking a closer look at the company’s press release, we concluded that we need to definitely dig a little deeper to make sure that our optimism is still intact. Recall that part of our optimism was due to a new management team that took over to help grow the company, something the legacy management team had been unable to accomplish for several years. We commented that we were impressed by the new management’s track record and that Mariel Gabelli had a stake in the company. Under new management, the Company has made 4 acquisitions. However, we are concerned about 2 things

It appears that organic growth is at a standstill and declining, meaning that the only reason the company is growing is through acquisitions..
Its subsidiary, Road IQ, has been shut down. This was one of the company’s acquisitions that it had high hopes for.

“ In fiscal 2019, net income was adversely affected by non-recurring restructuring cost associated with the discontinuation of Road-iQ, a subsidiary of Velvac, and the consolidation of our Composite Panel Technologies facility, as well as an increase in M&A related expense, net of tax, incurred in fiscal 2019, related to the acquisition of Big 3 Precision.”

We obviously need to look into these issues to determine if we still have the same level of confidence in the management that we had when we originally were bullish on the story.

Research

Fri, 28 Feb 2020 17:14:02 GMT

Eastern Company (NASDAQ:EML) ($28.19; $178.8M market cap), an industrial hardware manufacturer announced Q4 2019 results:

Sales of $68.7 million vs $56.6 million in the prior year
EPS of $0.79 vs $0.70 in the prior year

We brought the year to a strong close and are pleased with Eastern’s accomplishments in 2019. Our acquisition of Big 3 Precision in August 2019 is an important step toward our long-term goal of building a larger and stronger company with a significant presence with key customers. It also made a substantial contribution to our fourth quarter results.

Despite ongoing uncertainty in the macro-environment, we are confident that we can deliver on our plan and achieve our goals. Our backlog is robust, totaling $72.2 at the end of fiscal 2019. The growth in fiscal 2019 reflects both our acquisition of Big 3 Precision and a strong flow of orders at Eberhard Manufacturing. Certain of our businesses are experiencing supply chain disruption in China as a result of the coronavirus (COVID-19), but, at this time, local conditions appear to be improving.”

Research

Fri, 08 Nov 2019 15:59:07 GMT

Eastern Company (NASDAQ:EML) ($28.19; $178.8M market cap), an industrial hardware manufacturer announced Q3 2019 results:

Sales of $60.7 million vs $57.4 million in the prior year
EPS of $0.67 vs $0.60 in the prior year

Our backlog grew significantly as a result of the acquisition of Big 3 Precision and remains robust through the end of the year. We anticipate continued strong performance of our businesses as a result of planned new product launches, which reflect our focus on highly engineered, value-added products. In addition, Big 3 Precision’s robust operating results support our conviction that the business will be a significant contributor to our top line, earnings growth and cash flow in 2019. We expect the acquisition to be accretive to our full-year results before transaction expenses.”

Mr. Vlak concluded, “Our acquisition of Big 3 Precision is an important step toward our long-term goal of building a larger and stronger company with a significant presence with key customers and $100 million in EBITDA. We remain confident that our strategy of continually optimizing Eastern’s portfolio of businesses, improving execution, and ensuring a solid and flexible balance sheet will generate positive long-term results for our shareholders.”

Conference call notes:

Management states that the Big 3 acquistion is ahead of schedule and will be accretive to earnings sooner than expected.

Quotes from call:

"When we announced the acquisition, I mentioned that we expected it to be accretive to Eastern's earnings for fiscal 2020. Big 3's performance in the past quarter has reinforced that expectation. In fact, we now anticipate, not including its action expenses, it will be accretive to our full year 2019 results....

We do expect the acquisition to be accretive to 2020 EPS by at least $0.40, and we are confident in that number, and we're working hard to try to beat that number."

You can see our full coverage on EML here.

Research

Tue, 10 Sep 2019 18:33:48 GMT

Eastern Company (NASDAQ:EML) ($25.37; $144.4M market cap), an industrial hardware manufacturer, saw two insiders buy shares on the open market. Yesterday, two form 4’s were filed, one from CEO August Vlak who purchased 5,717 at an average price of $24.50. The other was from Director Peggy Scott who purchased 2,041 shares at an average price of around $25.24.

Just last week we highlighted a recent acquisition that the company announced which is expected to add at least $0.40 in EPS for 2020. It is nice to see management buying shares as it continues to execute its acquisition strategy. You can see our full coverage on EML here.

Research

Wed, 04 Sep 2019 04:00:00 GMT

Eastern Company (NASDAQ:EML) ($22.55; $140.6M market cap), an industrial hardware manufacturer, announced the acquisition of Big 3 Precision for $81.7 million.

"Based on its unaudited, internal financial statements, Big 3 Precision generated sales of $72.2 million and Adjusted EBITDA1 of $13.4 million for the twelve months ended June 30, 2019. Moreover, based on its audited financial statements, Big 3 Precision has posted double digit sales growth in each of the last 5 fiscal years.

The transaction is expected to be immediately accretive, excluding transaction expenses and purchase accounting adjustments, and accretive by at least $0.40 per share to EPS in Fiscal 2020. To fund the transaction, Eastern has refinanced its existing credit agreement with a new $100 million term loan and $20 million revolving credit facility.

“In acquiring Big 3 Precision, we are adding a substantial new growth business and moving Eastern closer to our long-term goal of generating $100 million in EBITDA. This transaction, our third acquisition in three years, represents another step toward our ambition of building a larger company that has a strong presence with key customers and in key markets,” said August Vlak, President & CEO of Eastern. “Consistent with our disciplined approach, this transaction checks the boxes of our stated acquisition criteria: strong intrinsic economics, including an attractive margin profile and high cash flow generation; a robust business model in attractive niche markets we understand; and a committed and capable management team.”

As we have previously stated, management has embarked on an acquisition strategy to find new growth avenues that are synergistic with EML’s established product lines. Even though EML shares have performed poorly since we added the stock to our select long, favorite and multi-bagger portfolios, we still have confidence in the direction new management is taking the company. Furthermore, based on 13D filings, we are happy to see that Mario Gabelli's fund is still holding its shares.

You can see our past EML coverage here.

Research

Fri, 09 Aug 2019 15:28:02 GMT

Eastern Company (NASDAQ:EML) ($23.23; $144.7M market cap), n industrial hardware manufacturer, announced Q2 2019 results:

Sales of $61.4 million vs $60.9 million in the prior year
Non-GAAP EPS of $0.72 vs $0.54 in the prior year

“We have adopted a leaner approach to developing enhanced vision products at Velvac and discontinued our existing Road-iQ operations. One-time costs associated with this discontinuation included a write-off of software, inventory and fixed assets, severance, and lease termination expenses. These costs were partially offset by the elimination of a contingent liability related to Road-iQ. In addition, in the first 6 months of 2019, we incurred $0.6 million in China related tariffs. Our businesses have been successful in working with our customers to mitigate the impact of these tariffs on our earnings.

Looking ahead, we don’t expect further restructuring charges in the second half of the year and our backlog is expected to remain strong for the remainder of 2019 due to continued demand for our products in Class 8 trucks, truck accessories, and other core markets, as well as a number of new product launches. We continue to look for opportunities to expand our business through acquisitions. We are confident that our three-part strategy of optimizing our portfolio of businesses, improving execution and building our balance sheet will generate long-term results for our shareholders.”

As we mentioned in our EML earnings preview on August 2, 2019, the impact of China tariffs on margins was one of our primary concerns. Based on the commentary in the press release and the company's nice adjusted bottom line performance for the quarter, it seems like they have the situation under control, at least for now.

Next, we will look to see is the company can accelerate its revenue growth. We're confident that EML will continue to acquire companies to accelerate revenue growth. However, it has been a while since we talked to management, so we will try to set up an interview soon to learn more about organic growth opportunities.

You can see our full coverage on EML here.

Research

Thu, 02 May 2019 04:00:00 GMT

Eastern Company (NASDAQ:EML) ($26.15; $162.9M market cap), an industrial hardware manufacturer, announcedQ1 2019 results:

Sales of $60.9 million vs $59.4 million in the prior year
Non-GAAP EPS of $0.43 vs $0.49 in the prior year

“our backlog is healthy and we expect sales to remain strong for the rest of 2019, due to continued demand for our products in Class 8 trucks, truck accessories, and other core markets, as well as a number of new product launches. We continue to look for opportunities to expand our portfolio through acquisitions. We are confident that our three-part strategy of optimizing our portfolio of businesses, improving execution and building our balance sheet will generate long-term results for our shareholders.”

Research

Wed, 27 Feb 2019 05:00:00 GMT

Eastern Company (NASDAQ:EML) ($26.62; $166.5M market cap), an industrial hardware manufacturer, announcedQ4 2018 results:

Sales of $56.6 million vs $54.1 million in the prior year
EPS of $0.70 vs non-GAAP EPS of $0.38 in the prior year (waiting on 10-K to calculate Q4 2018 non-GAAP)

“The increase in sales for the full year and fourth quarter of 2018 compared to the same periods in 2017 reflects sustained growth of demand for our products and the launch of significant new programs across both our Industrial Hardware and Security Products business segments…

...The growth in net income was attributable to an increase in sales, higher operating margins, especially in our Industrial Hardware and Security Products segments, and the non-recurrence of one-time charges associated with the Tax Cut and Jobs Act of 2017.

Looking ahead, our backlog remains strong going into 2019, in part due to Velvac’s success in capturing several significant new mirror programs and new truck accessory programs at Illinois Lock. We are confident that our three-part strategy of optimizing our portfolio businesses, improving execution and building our balance sheet will generate long-term results for our shareholders.”

Revenue growth the past few quarters has not been great, however, the cost cutting initiatives have boosted the company’s operating leverage leading to much improved bottom line results. This sets the company up well for if the company begins to drive top line growth as we expect.

We will be on the conference call in a few weeks to see if management will provide any further details regarding the company’s outlook for 2019. You can see our full coverage on EML here.

Research

Fri, 02 Nov 2018 14:57:08 GMT

Eastern Company (NASDAQ:EML) ($28.01; $175.5M market cap), an industrial hardware manufacturer, announced Q3 2018 results. In prior quarters, the Company had discussed some uncertainties with its business due to tariffs and overall higher raw material costs which were affecting gross margins. It’s good to see that management has been able to emphasize the higher margin business and pass on some of the higher costs to its customers.

We are not overly excited with the minimal revenue growth for the quarter, but still love the management team and long term prospects. We believe they will find ways to drive organic revenue growth and add to that growth through accretive acquisitions. We don’t think the company has meaningfully exploited the growth opportunity of its Road IQ (telematics) business that it acquired as part of the Velvac acquisition. If a favorable U.S China trade deal is reached soon, we feel investors may see EML as a timely story.

Sales of $57.4 million vs $56.0 million in the prior year
EPS of $0.60 vs $0.35 in the prior year

“The growth in net income was primarily attributable to increased profitability of the Company’s Eberhard Manufacturing and Illinois Lock businesses. While the Company increased total investment in new product development, it significantly reduced its investments in certain programs, including Road-iQ. Gross margins were 25% of net sales for the third quarter of 2018 compared to 21% of net sales for the third quarter of 2017. Mr. Vlak commented that “the favorable impact from changes in the product mix and price increases in response to higher raw material costs and cost absorption was partially offset by higher prices for steel, zinc, copper and scrap iron.

Looking ahead, we believe we are addressing economic uncertainties. Our businesses have been working with our customers to manage the increased tariffs with other countries. Our backlog remains strong going into the new year due, in part, to our subsidiary, Velvac Holdings, Inc., successfully capturing several significant new mirror programs. We strengthened our balance sheet by using cash repatriated from overseas subsidiaries to pay down outstanding debt in the third quarter and repurchasing 30,000 shares of our common stock between August 1 and October 31, 2018 pursuant to our previously announced share repurchase program. We are confident that our three-part strategy of optimizing our portfolio businesses, improving execution and building our balance sheet will generate long-term results for our shareholders.”

Research

Fri, 03 Aug 2018 04:00:00 GMT

Eastern Company (NASDAQ:EML) ($28.55; $179.0M market cap), an industrial hardware manufacturer, announced Q2 2018 results:

Sales of $60.9 million vs $58.0 million in the prior year
Non-GAAP EPS of $0.52 vs $0.48 in the prior year

Management commentary:

Mr. Vlak commented that "the favorable impact from cost reduction and cost absorption were more than offset by higher material costs, primarily due to increases in prices for steel, zinc, copper and scrap iron. While we were able to recover some of the increases in raw material prices, price increases often lag cost increases. In addition, we started to scale back our investments in the development of new technology products, as we began to take initial orders at Road-iQ, a division of Velvac, and for gPay at Greenwald Industries. Road-iQ is a connected vehicle vision technology that provides both active and passive safety features to drivers of RVs, trucks and other specialty vehicles, and gPay is a new payment system that enables consumers to use their mobile phones to pay for their laundry."

Mr. Vlak added that "in the second quarter of 2018, the Company also acquired substantially all of the assets of Load N Lock Systems, Inc., ("Load N Lock"), including products and intellectual property. Load N Lock is a leader in innovative truck cap and tonneau cover locks that keep truck contents safe and secure and has developed and patented the first integrated power lock for the industry. The addition of Load N Lock adds new talent to our business and helps us build scale in attractive end-markets.

Mr. Vlak continued that "in July 2018, we repatriated approximately $5.5 million in cash from our overseas subsidiaries and used these funds to repay our outstanding revolving line of credit. The acquisition of Load N Lock and the repatriation of overseas cash are important steps in the execution of our three-part strategy of optimizing our portfolio businesses, improving execution and building our balance sheet. Despite continued macroeconomic uncertainty, we believe our businesses are well positioned to benefit from underlying growth in several of our core markets in 2018."

While we had not calculated any formal estimates for the quarter, we expected the company to have a little better top line performance driven by organic growth from its acquisition of Velvac in April 2017. However, we want to talk to management more about the acquisition and organic growth opportunities stemming from it. Moreso, gross margin seemed to be impacted by higher raw material costs (steel, zinc, copper).

It appears the price hikes the company has put into place have not hit the top line yet. We would like to get some color on the magnitude of the price increases versus the rise in raw material costs. For the time being, we still have confidence that this highly skilled management team will produce long term growth for the company and that many initiatives they put in place to do so are still in their infancy. With that being said, we do think there will be some short term pressure on the stock, until some of management’s efforts start to bear fruit to produce consistent and healthy organic top and bottom line growth, not just one time growth from acquisitions.

We have been very actively tracking EML, including it in several of our theme-based lists. A GeoBargain since February 16, 2018 and select long since May 25, 2017, the stock also currently resides in the Favorite Stock, Multi-Bagger and Contrarian (Buy on Pullback) 6.0 model portfolios. The stock has performed to our expectations since we have initiated coverage. We’ll make sure to participate in the conference call, set to take place August 7 at 9AM.

Our full coverage can be found at the stock’s profile page here. If you haven’t already done so, we strongly urge you to go through the catalogue of research and updates to familiarize yourself with the reasons why we started and continue to cover the company.

Research

Tue, 05 Jun 2018 14:41:52 GMT

GB Eastern (NASDAQ:EML) ($30.50; $191.0M market cap), an industrial hardware manufacturer announced the acquisition of certain assets of Load N Lock, a leader in innovative truck cap and tonneau cover locks that keep truck contents safe and secure. The company did not disclose the terms of the transaction but stated it expects the acquisition to be immediately accretive to earnings. Quotes from management:

“we are excited about this transaction and believe it is a big win for all our customers. We believe that, together, ILC and Load N Lock can bring additional capabilities to our customers and take our relationships to a new level”.

“this transaction further strengthens and builds scale in our ILC business and reflects our strategy for creating long-term shareholder value by investing in our best businesses through targeted acquisitions. Moreover, we believe that the acquisition will be immediately accretive, excluding the impact of one-time expenses”

Research

Fri, 04 May 2018 15:57:28 GMT

GB Eastern (NASDAQ:EML) ($29.25; $183.2M market cap), an industrial hardware manufacturer announced a program to repurchase 200,000 shares by May 2023.

Mr. James Mitarotonda, the Company’s Chairman, explained that, “the share repurchase program is designed to return value to shareholders and minimize dilution from potential stock issuances related to long-term incentive management compensation.”

Mr. August Vlak, the Company’s President and CEO, added that, “our new share repurchase program emphasizes our commitment to returning value to our shareholders, as we execute on our long-term growth strategy.”

Yesterday we highlighted EML’s strong Q1 2018 results, the full summary can be seenhere. EML is one of nine stocks on our favorite screen.

Research

Thu, 03 May 2018 15:31:22 GMT

GB Eastern (NASDAQ:EML) ($29.20; $182.8M market cap), an industrial hardware manufacturer, announced Q1 2018 results: (results released during the trading day yesterday)

Sales of $59.4million vs $36.0 million in the prior year
EPS of $0.49 vs $0.24 in the prior year

Quotes from management:

“we continue to make progress with our three-part strategy of optimizing our portfolio, improving execution and building our balance sheet. We continue to look for bolt-on acquisition opportunities that have strong economics and help us build scale in attractive end-markets. We are beginning to see some impact of the uncertainty surrounding tariffs and trade regulation on our customers as well as our businesses. However, we believe our businesses are well positioned to benefit from underlying growth in several of our core markets in 2018.”

We believe the tariffs could possibly be temporary hurdle for the company, something we’ll continue to watch closely.

Research

Fri, 16 Feb 2018 19:42:26 GMT

Eastern (NASDAQ:EML) ($25.70; $160.9M market cap) recent acquisitions and new management team have placed the company on a path to building shareholder value.

We have been rather excited about this industrial hardware manufacturer for some time and went long the stock on May 25, 2017 when it was trading at $30.95. On March 28, 2017 we released an article titled, “Industrial Goods Company May Prove That Boring Can Be Beautiful.”

As we stated, new management is embarking on an acquisition strategy and finding new growth avenues for EML-established product lines. In light of the above, we are also coding EML as a GeoBargain.

Comments & Business Outlook

Mon, 12 Feb 2018 16:12:24 GMT

Eastern (NASDAQ:EML) ($24.60; $154.0M market cap) industrial hardware manufacturer EML announced Q4 2017 results:

$54.1 million vs $34.1 million in the prior year
Non-GAAP EPS of $0.38 vs $0.42 in the prior year

Quotes from management:

“we anticipate increased earnings and cash flow as a result of the reduction in our income taxes starting in 2018. We intend to deploy incremental capital to fund the growth of our best businesses, make targeted acquisitions to strengthen our portfolio, and continue to build up our balance sheet by paying down debt and funding our pension and retirement plan obligations. We believe that the addition of Velvac strengthens our portfolio of businesses, and we continue to look for acquisition opportunities that have strong economics and help us build scale in attractive end-markets. In addition, we believe our businesses are well-positioned to benefit from strong underlying growth in several core markets in 2018.”

Research

Fri, 10 Nov 2017 16:30:40 GMT

Eastern Company (NASDAQ:EML) ($26.05; MC$163.2m) - This industrial hardware, security products and metal product company’sCEO and CFO made small open market purchases as shares pulled back after its Q3 2017 results. On November 7, 2017 we highlighted EML’s Q3 2017 results where the company posted 67% top line growth but was flat on the bottom line, possibly due to one time expenses associated with its accelerated development of one its products it acquired with its recent acquisition. EML’S CEO August Vlak purchased 1,800 shares at $25.75 and CFO John Sullivan also purchased 1,400 shares at $25.75.

EML is part of our Multi-Bagger Mock Portfolio as well as our Buy on Pullback Mock Portfolio 6.0.

Research

Tue, 07 Nov 2017 16:53:24 GMT

Eastern Company (NASDAQ:EML) ($29.90, mc $127.2m) announced its Q3 2017 results:

Sales of $56.0 million vs $33.5 million in the prior year period
Non-GAAP EPS of $0.36 vs $0.38 in the prior year

Quotes from management:

"The increase in sales in the third quarter of 2017 and the first nine months of 2017 over the same periods in 2016 reflect the acquisition of Velvac, which closed on April 3, 2017. In addition, all three of our business segments grew sales compared to the same period of 2016. Net income declined in the third quarter of 2017 from the comparable period of 2016 due to an increase in engineering cost of $1.2 million primarily related to the accelerated development of new technology vision products at Road-iQ, a division of Velvac, and gPay at Greenwald Industries. Road-iQ is a connected vehicle technology that provides both active and passive safety to drivers of RVs, trucks and other specialty vehicles. We expect these new products to be ready for market later in the fourth quarter of 2017.

We continue to make progress with our three-part strategy, including optimizing our portfolio, improving execution and building our balance sheet. We believe that the addition of Velvac strengthens our portfolio, and we continue to look for bolt-on acquisition opportunities that have strong economics and help us build scale in attractive end-markets. In addition, we are investing in new products, sales and marketing capabilities, as well as our operations in our core businesses to drive growth."

Investors should note that the company spent $1.2 million for the accelerated development of new technology products at Road-iQ. This expense could be a one-time expense which would add another $0.19 to the quarterly EPS run rate. However, it is unclear if there will be an increase in SG&A or marketing expense. We will be on the conference call later this morning to see if the Company sheds any further light on these expenses. To our knowledge, this is the Company’s first ever conference call.

Research

Wed, 11 Oct 2017 14:55:19 GMT

Eastern Company: Activists And Acquisitions Make This “Boring” Story Sexy

We have been rather excited about $EML (30.15) for some time and went long the stock on May 25, 2017 when it was trading at $30.95. On March 28, 2017 we released an article titled, “Industrial Goods Company May Prove That Boring Can Be Beautiful.”

As we stated, new management is embarking on an acquisition strategy and finding new growth avenues for EML-established product lines.

Recall that in April 2017 and subsequent to our published research, management announced it acquired Velvac, a premier designer and manufacturer of proprietary vision technology for commercial vehicles. We took a closer look at Velvac. As you will see, EML now has a presence in the connected vehicle industry.

Let’s see what management bought:

“The Vacuum Power Equipment Company opened its doors for business in 1934, beginning a long tradition of manufacturing air brake and valve components for heavy trucks. In 1940, the corporate name was changed to “Velvac” in response to the popularity of the company’s Velvet Vacuum Brakes brand. In the mid 1950’s, Velvac began producing a range of “west coast” mirror heads for North American truck manufacturers, becoming an OEM supplier of mirrors to GM in 1956. This started Velvac’s growth and eventual leadership in supplying vision systems to the North American commercial vehicle market. Our product line has expanded over the years and now includes over 4,000 popular vehicle components. As Velvac has grown over its 80 year history, the company’s primary manufacturing facilities have moved and been expanded five times.

At Velvac, we are committed to keeping our customers in the commercial truck, recreational vehicle and specialty vehicle industries at the forefront of safety, aesthetics, and competitiveness.

In order to respond to the increasingly important role of electronics, software and vehicle connectivity emerging vision system technology, Velvac acquired the key assets and operations of Qualnetics, Inc. in Bellingham, WA in 2014, creating a new subsidiary company named Road-iQ to support the technology transformation occurring in the field of vision systems.”

Probing a little deeper:

“Velvac has developed some of the most sophisticated vision systems in the industry. With the addition of Road-iQ and the 5th Wheel Dual Camera System, Velvac has moved into the connected vehicle solution arena to provide real-time blind spot viewing, recorded video data and integrated cameras. These systems provide the driver with dedicated views of blind spots and passing lanes around the vehicle, resulting in an intuitive visual experience that improves safety and reduces the potential for costly and dangerous accidents.”

The fleet management (telematics) industry is a hot topic among regulators, as well as investors these days. In the U.S, regulation has been passed that is going to force fleet management operators to adopt fleet management tools by early next year. Safety and data analytics are a big focus of regulation.

Research

Fri, 04 Aug 2017 14:21:30 GMT

**Call To Action - “Buy on Pullback” Mock Portfolio 6.0 Opened with First Stock

As second quarter results begin to wind down, we are beginning to look for candidates to add to our Buy on Pullback Mock Portfolio 6.0. We are kicking off the portfolio with $EML ($28.45) which posted strong Q2 2017 results during the trading day yesterday, but had a muted reaction to the results, which we think is a result of two factors:

News release came out in during the day as opposed to pre-market.
Not a clear grasp of the growth in adjusted earnings per share (EPS) contained in the press release, since GAAP earnings growth was negative.

EML is also in our recently launched Multi-bagger Mock Portfolio due to our belief in the new management team (led by activist investors), which we think is quite capable of adding value to the business, beyond what is apparent today.

Q2 2017 Results:

Sales of $58.0 million vs $36.8 million
GAAP EPS $0.23 vs $0.33 in the prior year
Non-GAAP EPS of $0.48 vs $0.33 in the prior year

Quotes from management:

“We are making solid progress with our three-part strategy, including optimizing our portfolio, improving execution in each of our businesses, and building our balance sheet,” said Mr. Vlak. “We believe the acquisition of Velvac strengthens our portfolio by building scale in attractive end-markets, including trucks, motorhomes and specialty vehicles. Velvac is a leader in many of these markets, which is anticipated to expand opportunities for some of our other businesses. Further, we plan to continue to invest in building our sales, marketing and engineering capabilities in our core businesses to drive growth. Finally, by taking advantage of our solid balance sheet and with strong operating cash flows, we added $36 million in debt to our balance sheet to fund the acquisition of Velvac.”

On March 28, 2017 we released an article titled, “Industrial Goods Company May Prove That Boring Can Be Beautiful.” Shares are up 40% since the time of our article.

Research

Tue, 20 Jun 2017 15:42:31 GMT

EML ($29.40) - We first highlighted EML in our February 10, 2015 RFT based on Barington Capital’s original 13D activity showing its intent to take an active role in improving the Company’s strategic focus sparked our coverage. The stock was trading at $19.65. On March 28, 2017 we released an article titled, “Industrial Goods Company May Prove That Boring Can Be Beautiful.”

On April 4, 2017 EML announced its acquisition of Velvac, a premier designer and manufacturer of proprietary vision technology for commercial vehicles. Velvac had sales of $58.7 million for fiscal 2016. The transaction is expected to be accretive to earnings in fiscal 2018.

On May 25, 2017 we disclosed our long position and added it to our multi-bagger mock portfolio.

Today, EML released the pro-forma financials to reflect the Velvac acquisition. As discussed in the original release, while the acquisition will add nearly 50% to the top line, the acquisition is not expected to be accretive to fiscal 2018. Pro Forma results for year ended December 2016 show EPS of $1.25 prior to acquisition and $1.20 post.

Research

Thu, 25 May 2017 14:53:32 GMT

Disclosing Long Position In EML and Added It To Our Multi-bagger Mock Portfolio

EML ($30.65) shares hit a new 52 week high of $31.00 in yesterday’s trading session. This occurred on the heels of 13D activity by Barington Capital. Late in yesterday’s trading session we issued the following tweet:

There is also an exhibit to the 13D filing which we found intriguing. The letter stated:

“By so countersigning this letter, Seller and Buyer each (a) acknowledge that it has been informed that the other party hereto or its agents may currently possess, and later may come into possession of, material non-public information not known to Seller or Buyer, as applicable, and that may be material to a decision by Seller to sell the Shares and by Buyer to purchase the Shares, and it has determined to sell the Shares or purchase the Shares, as applicable, notwithstanding its lack of knowledge of such information;” ( see the full letter here)

We do not see this kind of side-letter frequently and consulted with litigation experts to see if we could glean a more thorough understanding of the ramifications of such a disclosure. As learned, the side-letter can imply that one party (presumably the insider Barrington Capital) possesses material non-public information, so speculations of a takeout or asset sale developing are not out of the question. As you might recall from our March 28, 2017 article, EML operates three divisions.

At this point, we believe that the side-letter is likely just standard protection, but the probability of a material transaction increases from a speculative point of view. Regardless, the willingness of an involved insider to purchase additional blocks of shares is a positive sign. Presumably the shareholder (Seller) does not have as good an insight into the company as the insider (Buyer). The motive to sell could simply be to lock in profits after the recent increase in stock price, or as one might put it, a disciplined approach to investing.

We are disclosing a long position in EML and are adding it to our Multi-bagger portfolio.

We first highlighted EML in our February 10, 2015 RFT. Barington Capital’s original 13D activity showing its intent to take an active role in improving the Company’s strategic focus sparked our coverage. The stock was trading at $19.65 at that time.

We initiated our Multi-Bagger Mock Portfolio list with 3 stocks: $INTX, $DAIO and $BMRA. On May 9, 2017, via premium tweet, we added $TORM. Today we are adding EML to the portfolio and are beginning to build a position even though the stock has increased around 50% from our more recent March 28, 2017 article titled, “Industrial Goods Company May Prove That Boring Can Be Beautiful”, when the stock was trading at $20.25, and we stated:

“We also think that when combined with everything going on to jump start growth, that EML will eventually experience a significant expansion in its valuation multiples.

Investors who want to place a bet in EML probably need to do so ahead of a positive tangible announcement on the company’s progress. The stock has 6.2 million outstanding shares and a float of only 5.5 million.”

Our long-term multi-bagger bet in this case is on a new management team that we think is quite capable of adding value to the business, beyond what is apparent today.

On May 5, 2017 we introduced ourMulti-bagger Mock Portfolio for investors willing to hold stocks through volatility, market gyrations or operational hiccups. With the right management teams in place, we feel the companies in our Multi-bagger Mock Portfolio may be able to shrug off these types of obstacles over a span of 3 to 5 years.

We also look at companies that we believe have, among other traits, shareholder-friendly share structures. This is important because a low outstanding share count is a common trait of multi-baggers.

Research

Wed, 03 May 2017 16:07:44 GMT

EML ($27.25) reported Q1 2017 results:

Sales of $36 million vs $33.1 million in the prior year
EPS of $0.24 vs $0.10 in the prior year

Quotes from management:

“The Company is making solid progress with the execution of its three-part strategy, including optimizing our portfolio, strengthening execution in each of our businesses, and building our balance sheet,” said August Vlak. He stated that “the acquisition of Velvac Holdings, which we announced on April 4, 2017, represents a significant step towards building a portfolio of larger, higher-growth businesses that are well-positioned in attractive markets. We believe Velvac and several of our existing businesses will be able to benefit from our shared customer relationships and combined market strength.

The transaction is expected to be breakeven including purchase accounting expenses but before one-time transaction costs, in the current fiscal year. The transaction is projected to be accretive to Eastern’s earnings in fiscal 2018.”

Research

Wed, 05 Apr 2017 14:44:08 GMT

EML ($22.40) - Shares of EML hit a new 52 week high of $22.45 in yesterday’ trading session on the heels of its acquisition announcement of Velvac, a premier designer and manufacturer of proprietary vision technology for commercial vehicles. Velvac had sales of $58.7 million for fiscal 2016. The transaction is expected to be accretive to earnings in fiscal 2018.

EML consummating a new acquisition was one of the key focal points we mentioned in our March 28, 2017 we released an article titled, “Industrial Goods Company May Prove That Boring Can Be Beautiful.”

Research

Mon, 03 Apr 2017 17:03:23 GMT

EML ($21.40) - On March 28, 2017 we released an article title, “Industrial Goods Company May Prove That Boring Can Be Beautiful.”

Today’s brief update is on the Company’s pension liability. As noted in our article, the estimated future benefit payments to participants are:

$3.8 million in 2017
$4.0 million in 2018
$4.2 million in 2019
$4.5 million in 2020
$4.7 million in 2021
$26.2 million from 2022 through 2026

We talked with management to get more color on the pension freeze. We learned that (1) pension payouts might differ from above estimates and (2) there will be payments after 2026. The fact of the matter is that there are no new pension liabilities, but the existing ones have to be served in full.

Research

Mon, 13 Feb 2017 16:01:57 GMT

EML ($19.45) reported Q4 2016 results:

Sales of $34.1 million vs $34.4 million in the prior year
EPS of $0.42 vs $0.28 in the prior year

Quotes from management:

“The Company is starting to see the benefits of our three-part strategy, including optimizing our portfolio, strengthening execution in each of our businesses, and building our balance sheet,” said August Vlak. He stated that “we remain committed to organic growth and acquisitions to accelerate growth and improve returns of our best businesses.”

“Our decision to freeze our Salaried Employees Retirement Plan in May 2016 not only strengthened our balance sheet but also contributed $0.21 per diluted share in the fiscal year 2016, compared to the prior year. At the same time, we substantially enhanced our employee 401(k) plan. The elimination of one-time costs of $1.4 million, net of tax, associated with the proxy contest in the first half of 2015, similarly contributed to an improvement for the full fiscal year 2016 over the fiscal year 2015.”

Shareholder Letters

Fri, 25 Mar 2016 04:00:00 GMT

Dear fellow shareholders:

This is an exciting time at The Eastern Company. With a new Chief Executive Officer and new members on our Board of Directors, the Company’s senior leaders and dedicated associates are energized and eager to begin a new chapter in the Company’s history. We are focused on accelerating value creation for our customers and our shareholders.

Throughout its 158-year history, Eastern has periodically reinvented itself to meet the needs of a changing world. In each of these new eras, the Company has thrived by staying true to its core mission and core strengths. Eastern excels when it works closely with its customers to provide uniquely engineered products that meet their design and product specifications. Our core strengths include our engineering know-how, insight into customer needs, international manufacturing base, and access to a global supplier network. These advantages have enabled us to consistently deliver significant value to our customers. For example, we introduced a unique Whale Tail T-handle (the handle appears on the cover of this annual report). Our Eberhard engineering team developed this value-added design with input from a core customer and support from the Cleveland Institute of Art.

2015 Financial Results

Despite headwinds in several end markets, our total sales grew by 3% in 2015, to $144.6 million from $140.8 million in 2014. Sales from new products grew by 9%. Net income, however, decreased by 25% to $5.7 million from $7.7 million in 2014. Earnings per share fell by the same percentage, to $0.92 from $1.23. The decline in profitability was due to one-time expenses related to our 2015 annual meeting of shareholders as well as to lower capacity utilization in our Metal Products segment. Return on invested capital1 declined to 6.6%% percent in 2015 from 8.7% percent in 2014, primarily because of the decline in earnings and a 4%increase in working capital. We paid regular quarterly dividends of $0.44 per share in 2015 plus an additional $0.01 per share redemption fee related to the termination of the 2008 Shareholder Rights Agreement.

In March 2015, our new composite panel facility in North Carolina made its initial shipments of lightweight sleeper cabs for the Class 8 truck market. We hired a new leader for this location and anticipate that our investment in the North Carolina facility will open new opportunities for its products. Eastern now has four panel-making facilities in North America.

Also in 2015, we completed the integration of Argo Transdata, which we acquired in December 2014. An assembler of printed circuit boards, Argo contributed $4.9 in incremental sales during 2015. In December, the prior owner and leader of Argo retired. We hired a new leader with the expertise and relevant experience to help grow the business.

The mining industry continues to be affected by lower natural gas prices, excess coal inventories and stricter EPA regulations. As a result, sales in our Metal Products segment declined throughout 2015. Our largest customer in the U.S. mining industry serves a significant portion of the coal mining market in the Eastern (i.e., Appalachian) region. Of all U.S. mining regions, this one has seen the sharpest drop in its production because of its higher mining costs, which have made it difficult for the region to compete with natural gas and even coal mined in other areas of the U.S. Growth in our sales to other U.S. mining regions and to the Canadian mining market partially offset the drop in our sales to the Eastern region. In addition, our introduction of new products (including a shell and a small hole flange nut) helped offset some of the overall decrease in our sales of mining products.

At the Company’s annual shareholders meeting on May 20, 2015, shareholders elected James Mitarotonda and Michael McManus Jr. to the Company’s Board. The Board quickly began to make positive changes: It terminated the Company’s “poison pill” shareholder rights agreement, and also took steps to declassify the Board and adopt a majority-vote standard for the election of directors. At the end of the year, the Board named James Mitarotonda as its Chairman and appointed August (Gus) Vlak to serve as President and Chief Executive Officer of the Company, effective January 1, 2016.

The Board has proposed adding a new independent director, nominating Fred DiSanto for election at the 2016 annual meeting. Mr. DiSanto is the Chairman and Chief Executive Officer of The Ancora Group, a registered investment advisor. He is currently on the boards of Axia NetMedia Corporation and LNB Bancorp Inc. Mr. DiSanto was recommended to the Board by GAMCO Investors, Inc., the Company’s largest shareholder.

A New Chapter

Looking ahead, we are focusing on accelerating value creation and growth. We are developing a plan for optimizing our diverse portfolio of businesses and for improving our capital allocation.

Our plan seeks to take advantage of our engineering capabilities, enduring brands and strong position in selected markets by pursuing new end markets and finding more ways to go to market. We are also taking advantage of our combined strengths by increasing collaboration between our businesses.

We are simultaneously exploring merger and acquisition opportunities, including complementary acquisitions that further strengthen our high-return, high-potential businesses which can benefit from greater scale. We have developed a disciplined approach for identifying potential acquisition targets and for evaluating the strategic benefits and return on capital of potential transactions.

Finally, we are improving our allocation and management of capital in order to increase our return on invested capital. We have introduced new capital investment guidelines and have increased our emphasis on working capital.

Our plan relies on the hard work of everyone at Eastern, and we are thankful for the talent and unwavering commitment of our associates, senior operating executives and directors.

Looking ahead to the rest of 2016, we anticipate that increasingly challenging economic conditions in many of our end markets will likely further affect the performance of some of our businesses. As a result, we believe that it is more important than ever to implement our plan for the future. We look forward to reporting to you on our progress as we write the next chapter in the history of The Eastern Company.

Yours sincerely,

/s/August M. Vlak

August M. Vlak

President and Chief Executive Officer

/s/James A. Mitarotonda

James A. Mitarotonda

Chairman of the Board

13D and 13G Activity

Wed, 11 Feb 2015 05:00:00 GMT

$EML ($19.75) - yesterday we discussed EML’s 13D activities and financial results, which we felt might provide good potential upside for the investors. The company received a non-binding preliminary bid from SYNL of $19.09 per share which was rejected by EML's board of directors. Today SYNL revised its valuation of Eastern upward from its initial price of $19.12 per share to $21.00.

Reasons For Tracking

Tue, 10 Feb 2015 05:00:00 GMT

EML ($19.64) - The Eastern Company manufactures and sells industrial hardware, security products, and metal products in the United States and internationally. Reasons for tracking:

Recent 13D and 13G filings showing institutional/activist investors taking stake in the company Barington Capital Group taking an active role, as evident from their 13D filed on September 30, 2014 . The purpose of the transaction, as stated, follows:

“Barington representatives informed Mr. Leganza that they believed that the Company has underperformed its value potential for a substantial period of time and that shareholder value could be significantly improved by growing the Company through acquisitions, as well as by accelerating organic growth and increasing product innovation. The Barington representatives informed Mr. Leganza that they could help the Company improve shareholder value, and Mr. Leganza asked if they would send him a proposal regarding ways Barington could assist the Company. “

On February 6, 2015, Barington Capital sent a letter to Leonard F. Leganza, the Chairman, President and Chief Executive Officer of the Company, which contains recommendations from Barington Capital:
- Improve Eastern's strategic focus.
- Accelerate growth and product innovation in high-potential businesses, both organically and through targeted acquisitions.
- Improve Eastern’s corporate governance.
In addition, on January 16, 2014 another activist investor named Minerva Advisors also filed a 13D with 6% equity interest in the company. Purpose of Transaction from the 13D contains:

“the Reporting Persons have become aware of a reluctance on the part of the Issuer to engage in constructive conversations with potential business partners relating to strategic alternatives open to the Issuer. Issuer’s dismissive response to the recent 8-K filed by Synalloy is the latest example of such reluctance. Given the Issuer’s lack of meaningful growth and lack of any clear management succession plan, the Reporting Persons believe it is time to engage in an energetic review of strategic alternatives including hiring an investment banking firm to consider the sale of the issuer or substantial changes to the Issuer’s capital structure.”

Latest financial results from Q3 2014 (reported in October 2014)
- Q3 EPS of $0.39 vs $0.29
- Q3 Rev of $35.8 vs $34.2
A recently announced accretive acquisition of Argo Tansdata (will add about 4% to top line)
They received a non-binding preliminary bid from SYNL of $19.09 per share which was rejected by EML's board of directors, stating it was not in the best interest of the shareholders.
Applying a P/E multiple of 25 on trailing EPS of $1.21 gives us a price target of $30.25 or nearly 70% upside from current prices.

Caveats:

Our price target is probably aggressive, given that EML has not been able to deliver consistent revenue and EPS growth for some time. Fortunately, now that activist are involved, management may be forced to take measures to improve performance.
Our attempts to interview management have been unsuccessful