UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report:
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(State or other jurisdiction of incorporation) |
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| (IRS Employer identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
________________________________________________
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2)
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 2.02 – Results of Operations and Financial Condition
Press Release dated November 7, 2023, announcing the third quarter earnings for 2023 is attached hereto.
Earnings Call Transcript dated November 8, 2023, detailing review of third quarter earnings for 2023 is attached hereto.
ITEM 7.01 – Regulation FD Disclosure
On November 7, 2023, The Eastern Company released the third quarter earnings of 2023. A copy of the Press Release dated November 7, 2023, announcing the third quarter earnings for 2023 is attached hereto.
ITEM 9.01 – Financial Statements and Exhibits
(d) Exhibits
Exhibit No. |
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| Press Release dated November 7, 2023 announcing the third quarter earnings for 2023. | |
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104 |
| Cover Page Interactive Data File (cover page XBRL tags are embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| The Eastern Company |
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Date: November 16, 2023 | By: | /s/Nicholas Vlahos |
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| Nicholas Vlahos Chief Financial Officer |
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EXHIBIT 99.1
THE EASTERN COMPANY REPORTS THIRD QUARTER 2023 RESULTS
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| · | Impact of new operational transformation program evident in working capital improvement, margin improvement and an increase in EPS from continuing operations sequentially. |
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| · | Gross margin as a percentage of sales improved to 24.9% in the third quarter of 2023 from 22.2% in the second quarter of 2023. |
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| · | Cash flow from operations for the nine months ended September 30, 2023 increased $19.6 million compared to the same period in 2022, enabling record debt paydown of $15.2 million during the first nine months of 2023. |
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| · | EPS from continuing operations was $0.49 per share in the third quarter of 2023 compared to $0.22 in the second quarter of 2023, an increase of 123%. Adjusted EPS increased 23% to $0.49 per share in Q3 2023 from $0.40 per share in Q2 2023 |
SHELTON, CT – November 7, 2023 - The Eastern Company (“Eastern”) (NASDAQ:EML), an industrial manufacturer of unique engineered solutions serving commercial transportation, logistics, and other industrial markets, today announced the results of operations for the third fiscal quarter ended September 30, 2023.
President and CEO Mark Hernandez commented, “Eastern’s new leadership team has been driving ahead with the operational transformation program we began implementing in early 2023 to enhance the Company’s operating efficiency, reduce costs and strengthen its focus on delivering value to shareholders. As we expected, the positive impact of these efforts is becoming increasingly evident in the Company’s financial results.
“In particular, our improvement in gross margin as a percentage of net sales -- which, on a sequential quarter basis, rose 270 basis points from Q2 2023 to 24.9% in Q3 2023 -- reflects the success of our product repricing program. We have been systematically working with our commercial vehicle and automotive customers to recover increases in raw materials, freight costs, and tariffs on our legacy products and have now completed this process and fully transitioned from old to new pricing structure. The positive impact of our repricing strategy is clearly evident in the substantial increases in Eastern’s earnings per share on a sequential basis. In addition, we did encounter some headwinds in sales during the third quarter, however, backlog did increase 4% year-over-year due to new product launches by our automotive customers and order flow has picked up while global supply chain dynamics have returned to their pre-pandemic state.”
Mr. Hernandez added, “Our balance sheet continues to strengthen. During the first nine months of 2023 we increased our cash flow from operations by $19.6 million compared to last year’s period. We used this cash flow to pay down another $5 million in debt during the third quarter, reaching a record debt paydown of $15.2 million for the year to date. As part of our disciplined operations strategy, we have been aggressively paying down debt to increase our capacity for our fourth pillar of adding accretive acquisitions to Eastern’s portfolio of companies. At the end of the third quarter, our senior net leverage ratio was 1.85 to 1.”
“The four-pronged strategy we developed early this year, based on disciplined operations, optimum capital utilization, focused commercial business, and value-adding acquisitions, continues to guide all our actions. Within our three operating divisions we have been taking many steps to become more efficient and optimize performance. We look forward to capitalizing on these actions as well as the positive trends in our industry and the impact of our repricing strategy in the year’s final quarter.”
Third Quarter and Nine Months Ended September 30, 2023 Financial Results
Net sales in the third quarter of 2023 decreased 8% to $65.6 million from $71.6 million in the corresponding period in 2022. Net sales for the first nine months of 2023 decreased 2% to $206.5 million from $210.2 million in the same period last year. Sales declined in both the third quarter of 2023 and first nine months of 2023 primarily due to lower demand for truck accessories and returnable transport packaging products. Our backlog as of September 30, 2023 increased 4% to $89.4 million from $85.7 million as of October 1, 2022.
3 ENTERPRISE DRIVE, SUITE 408, SHELTON, CONNECTICUT 06484
PHONE (203) 729 - 2255 * FAX (203) 723 - 8653 * WWW.EASTERNCOMPANY.COM
Gross margin as a percentage of sales was 25% in the third quarter and 23% in the first nine months of 2023 compared to 23% in the third quarter and 22% in the first nine months of fiscal 2022. Our gross margins in the third quarter and first nine months of 2023 reflect the impact of price increases to customers to recover increases in raw material costs.
Selling, general and administrative expenses decreased $0.4 million, or 4%, in the third quarter of 2023 when compared to the third quarter of 2022 primarily due to lower legal, professional, and selling costs and payroll-related expenses. Selling, general and administrative expenses increased $2.8 million, or 9% in the first nine months of 2023 when compared to the corresponding periods in 2022 primarily due to severance and other accrued compensation expenses of $1.8 million related to the elimination of the chief operating officer position and the departure of our previous chief executive officer during the first quarter of 2023 and legal, professional, and selling costs and payroll-related expenses during the first six months of 2023. The increase in selling expenses reflects our investments in sales capabilities and a change in management personnel.
Other income decreased $1.3 million in the third quarter of 2023 and decreased $2.6 million in the first nine months of 2023 compared to the corresponding periods in 2022. The decrease in other income of $1.3 million in the third quarter of 2023 was primarily driven by unfavorable pension costs of $0.3 million in the third quarter of 2023, while in the third quarter of 2022 the Company had a favorable pension cost adjustment of $0.4 million, and a $0.6 million gain on the sale of the Company’s corporate office building in the third quarter of 2022. The decrease in other income of $2.6 million for the first nine months of 2023 when compared to the corresponding period in 2022 was primarily driven by unfavorable pension costs of $0.9 million for the first nine months of 2023, while in the first nine months of 2022 the Company had favorable pension cost adjustments of $1.3 million, $1.4 million expense associated with the closure of Associated Toolmakers, Ltd. in the second quarter of 2023, an unfavorable working capital adjustment of $0.4 million in the first quarter of 2023 related to the sale of the Greenwald business, partially offset by a $1.6 million favorable adjustment for the final settlement of our swap agreement with Santander in the second quarter of 2023, while in the first quarter of 2022 the Company had a loss on the sale of the Wheeling, IL building of $0.3 million and a gain of $0.6 million on the sale of the Company’s corporate office building in the third quarter of 2022.
Net income from continuing operations for the third quarter of fiscal 2023 was $3.1 million, or $0.49 per diluted share compared to net income from continuing operations of $4.5 million, or $0.72 per diluted share, for the comparable period in 2022. In the first nine months of 2023 net income from continuing operations was $5.1 million, or $0.81 per diluted share, compared to net income from continuing operations of $10.9 million, or $1.74 per diluted share, for the comparable period in 2022.
Adjusted net income from continuing operations (a non-GAAP measure) for the third quarter of fiscal 2023 was $3.1 million, or $0.49 per diluted share, compared to adjusted net income from continuing operations of $4.0 million, or $0.65 per diluted share, for the comparable period in 2022. For the nine months ended September 30, 2023, adjusted net income from continuing operations was $7.8 million, or $1.24 per diluted share, compared to $10.6 million, or $1.70 per diluted share, for the comparable period in 2022. Adjusted EBITDA from continuing operations (a non-GAAP measure) for the third quarter of fiscal 2023 was 7.0 million compared to adjusted EBITDA from continuing operations of $7.7 million for the third quarter of 2022. For the nine months ended September 30, 2023, adjusted EBITDA from continuing operations was $18.4 million compared to adjusted EBITDA from continuing operations of $21.0 million for the corresponding period of 2022. See “Non-GAAP Financial Measures” below and the reconciliation table accompanying this release.
Conference Call and Webcast
The Eastern Company will host a conference call to discuss its results for the third quarter of 2023 and other matters on Wednesday, November 8, 2023, at 11:00 AM Eastern Time. Participants can access the conference call by phone at 877-545-0320 (toll-free in the US and Canada) or 973-528-0002 (international), using access code 651078. Participants can also join via the web at https://www.webcaster4.com/Webcast/Page/1757/49220.
About The Eastern Company
The Eastern Company manages industrial businesses that design, manufacture and sell unique engineered solutions to markets. Eastern’s businesses operate in industries that offer long-term macroeconomic growth opportunities. The Company operates from locations in the U.S., Canada, Mexico, Taiwan, and China. More information on the Company can be found at www.easterncompany.com.
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Safe Harbor for Forward-Looking Statements
Statements contained in this release that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “would,” “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” “plan,” “potential,” “opportunities,” or similar terms or variations of those terms or the negative of those terms. There are many factors that affect the Company’s business and the results of its operations and that may cause the actual results of operations in future periods to differ materially from those currently expected or anticipated. These factors include the impact of the COVID-19 pandemic and resulting economic effects, the impact of higher raw material and component costs and cost inflation, supply chain disruptions and shortages, particularly with respect to steel, plastics, scrap iron, zinc, copper and electronic components, rising interest rates, delays in delivery of our products to our customers, the impact of global economic conditions on demand for our products, including the impact, length and degree of economic downturns on the customers and markets we serve, reductions in production levels, the availability, terms and cost of financing, including borrowings under credit arrangements or agreements, the potential impact of bank failures on our ability to access financing or capital markets, and the impact of market conditions on pension plan funded status. Other factors include, but are not limited to: restrictions on operating flexibility imposed by the agreement governing our credit facility; risks associated with doing business overseas, including fluctuations in exchange rates and the inability to repatriate foreign cash, the impact on cost structure and on economic conditions as a result of actual and threatened increases in trade tariffs and the impact of political, economic and social instability; the inability to achieve the savings expected from global sourcing of materials; lower-cost competition; our ability to design, introduce and sell new or updated products and related components; market acceptance of our products; the inability to attain expected benefits from acquisitions or the inability to effectively integrate such acquisitions and achieve expected synergies; domestic and international economic conditions, and more specifically conditions in the automotive, construction, aerospace, energy, oil and gas, transportation, electronic, and general industrial markets; costs and liabilities associated with environmental compliance; the impact of climate change; military conflict (including the Russia/Ukraine conflict, the conflict in Israel and surrounding areas, the possible expansion of such conflicts and geopolitical consequences) or terrorist threats and the possible responses by the U.S. and foreign governments; failure to protect our intellectual property; cyberattacks; materially adverse or unanticipated legal judgments, fines, penalties or settlements; and other risks identified and discussed in Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2023, and that may be identified from time to time in our quarterly reports on Form 10-Q, current reports on Form 8-K and other filings we make with the SEC. Although the Company believes it has an appropriate business strategy and the resources necessary for its operations, future revenue and margin trends cannot be reliably predicted and the Company may alter its business strategies to address changing conditions. Also, the Company makes estimates and assumptions that may materially affect reported amounts and disclosures. These relate to valuation allowances for accounts receivable and excess and obsolete inventories, accruals for pensions and other postretirement benefits (including forecasted future cost increases and returns on plan assets), provisions for depreciation (estimating useful lives), uncertain tax positions, and, on occasion, accruals for contingent losses. The Company undertakes no obligation to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise, except as required by law.
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Non-GAAP Financial Measures
The non-GAAP financial measures we provide in this release should be viewed in addition to, and not as an alternative for, results prepared in accordance with U.S. GAAP.
To supplement the consolidated financial statements prepared in accordance with U.S. GAAP, we have presented Adjusted Net Income from Continuing Operations, Adjusted Earnings Per Share from Continuing Operations and Adjusted EBITDA from Continuing Operations, which are considered non-GAAP financial measures. The non-GAAP financial measures presented may differ from similarly titled non-GAAP financial measures presented by other companies, and other companies may not define these non-GAAP financial measures in the same way. These measures are not substitutes for their comparable U.S. GAAP financial measures, such as net sales, net income from continuing operations, diluted earnings per share from continuing operations, or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures.
Adjusted Net Income from Continuing Operations is defined as net income from continuing operations excluding, when incurred, gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs. Adjusted Net Income from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis across periods by removing the impact of certain items that management believes do not directly reflect our underlying operating performance.
Adjusted Earnings Per Share from Continuing Operations is defined as earnings per share from continuing operations excluding, when incurred, certain per share gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs. We believe that Adjusted Earnings Per Diluted Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to access operating performance on a consistent basis from period to period.
Adjusted EBITDA from Continuing Operations is defined as net income from continuing operations before interest expense, provision for income taxes, and depreciation and amortization and excluding, when incurred, the impacts of certain losses or gains that we do not believe reflect our ongoing operations, including, for example, impairment losses, gains/losses on sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring expenses. Adjusted EBITDA from Continuing Operations is a tool that can assist management and investors in comparing our performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect our underlying operations.
Management uses such measures to evaluate performance period over period, to analyze the underlying trends in our business, to assess our performance relative to our competitors, and to establish operational goals and forecasts that are used in allocating resources. These financial measures should not be considered in isolation from, or as a replacement for, U.S. GAAP financial measures.
We believe that presenting non-GAAP financial measures in addition to U.S. GAAP financial measures provides investors greater transparency to the information used by our management for its financial and operational decision-making. We further believe that providing this information better enables our investors to understand our operating performance and to evaluate the methodology used by management to evaluate and measure such performance.
Investor Relations Contacts
The Eastern Company
Mark Hernandez or Nicholas Vlahos
203-729-2255
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| THE EASTERN COMPANY AND SUBSIDIARIES | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||||||||||||||||
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| Three Months Ended |
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| Nine Months Ended |
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| September 30, 2023 |
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| October 1, 2022 |
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| September 30, 2023 |
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| October 1, 2022 |
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| Net sales |
| $ | 65,635,680 |
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| $ | 71,636,746 |
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| $ | 206,468,838 |
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| $ | 210,191,448 |
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| Cost of products sold |
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| (49,260,313 | ) |
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| (55,056,160 | ) |
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| (159,447,930 | ) |
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| (163,047,360 | ) |
| Gross margin |
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| 16,375,367 |
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| 16,580,586 |
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| 47,020,908 |
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| 47,144,088 |
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| Product development expense |
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| (1,425,159 | ) |
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| (1,011,961 | ) |
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| (4,257,468 | ) |
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| (3,168,333 | ) |
| Selling general and administrative expenses |
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| (9,700,342 | ) |
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| (10,121,683 | ) |
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| (32,927,015 | ) |
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| (30,129,112 | ) |
| Operating profit |
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| 5,249,866 |
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| 5,446,942 |
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| 9,836,425 |
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| 13,846,643 |
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| Interest expense |
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| (1,067,779 | ) |
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| (645,773 | ) |
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| (2,574,890 | ) |
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| (1,583,894 | ) |
| Other (expense) income |
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| (135,839 | ) |
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| 1,118,453 |
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| (514,357 | ) |
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| 2,118,783 |
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| Income from continuing operations before income taxes |
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| 4,046,248 |
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| 5,919,622 |
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| 6,747,178 |
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| 14,381,532 |
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| Income tax expense |
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| (984,289 | ) |
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| (1,423,363 | ) |
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| (1,678,698 | ) |
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| (3,498,365 | ) |
| Net income from continuing operations |
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| 3,061,959 |
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| 4,496,259 |
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| 5,068,480 |
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| 10,883,167 |
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| Discontinued Operations (see Note B) |
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| Gain from operations of discontinued operations |
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| - |
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| 495,820 |
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| - |
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| 1,426,569 |
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| Income tax expense |
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| - |
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| (133,500 | ) |
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| - |
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| (384,104 | ) |
| Gain from discontinued operations |
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| - |
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| 362,320 |
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| - |
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| 1,042,465 |
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| Net income |
| $ | 3,061,959 |
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| $ | 4,858,579 |
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| $ | 5,068,480 |
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| $ | 11,925,632 |
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| Earnings per share from continuing operations: |
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| Basic |
| $ | 0.49 |
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| $ | 0.72 |
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| $ | 0.81 |
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| $ | 1.75 |
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| Diluted |
| $ | 0.49 |
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| $ | 0.72 |
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| $ | 0.81 |
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| $ | 1.74 |
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| Earnings per share from discontinued operations: |
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| Basic |
| $ | - |
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| $ | 0.06 |
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| $ | - |
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| $ | 0.17 |
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| Diluted |
| $ | - |
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| $ | 0.06 |
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| $ | - |
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| $ | 0.17 |
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| Total earnings per share: |
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| Basic |
| $ | 0.49 |
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| $ | 0.78 |
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| $ | 0.81 |
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| $ | 1.92 |
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| Diluted |
| $ | 0.49 |
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| $ | 0.78 |
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| $ | 0.81 |
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| $ | 1.91 |
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| Cash dividends per share: |
| $ | 0.11 |
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| $ | 0.11 |
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| $ | 0.33 |
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| $ | 0.33 |
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| 5 |
THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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| September 30, 2023 |
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| December 31, 2022 |
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| (unaudited) |
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| ASSETS |
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| Current Assets |
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| Cash and cash equivalents |
| $ | 9,540,786 |
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| $ | 10,187,522 |
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| Accounts receivable, less allowances: 2023 - $718,568; 2022 - $677,000 |
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| 42,838,864 |
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| 42,886,250 |
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| Inventories |
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| 60,648,599 |
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| 64,636,591 |
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| Current portion of notes receivable |
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| 570,696 |
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| 1,006,421 |
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| Prepaid expenses and other assets |
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| 5,876,920 |
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| 6,598,774 |
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| Total Current Assets |
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| 119,475,865 |
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| 125,315,558 |
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| Property, Plant and Equipment |
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| 60,077,603 |
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| 56,112,889 |
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| Accumulated depreciation |
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| (32,088,351 | ) |
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| (30,000,797 | ) |
| Property, Plant and Equipment, Net |
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| 27,989,252 |
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| 26,112,092 |
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| Goodwill |
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| 70,764,166 |
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| 70,777,459 |
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| Trademarks |
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| 5,514,890 |
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| 5,514,886 |
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| Patents and other intangibles net of accumulated amortization |
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| 16,080,034 |
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| 18,819,897 |
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| Long term notes receivable, less current portion |
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| 446,627 |
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| 2,276,631 |
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| Deferred Income Taxes |
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| 657,607 |
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| 488,989 |
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| Right of Use Assets |
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| 15,796,743 |
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| 12,217,521 |
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| Total Other Assets |
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| 109,260,067 |
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| 110,095,383 |
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| TOTAL ASSETS |
| $ | 256,725,184 |
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| $ | 261,523,033 |
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| 6 |
THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
| (unaudited) |
|
|
|
| ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
| ||
| Current Liabilities |
|
|
|
|
|
| ||
| Accounts payable |
| $ | 30,257,077 |
|
| $ | 27,638,317 |
|
| Accrued compensation |
|
| 4,205,484 |
|
|
| 3,327,832 |
|
| Other accrued expenses |
|
| 4,830,717 |
|
|
| 3,944,964 |
|
| Current portion of operating lease liability |
|
| 3,540,157 |
|
|
| 3,059,547 |
|
| Current portion of finance lease liability |
|
| 150,362 |
|
|
| - |
|
| Current portion of long-term debt |
|
| 3,000,000 |
|
|
| 9,010,793 |
|
| Total Current Liabilities |
|
| 45,983,797 |
|
|
| 46,981,453 |
|
|
|
|
|
|
|
|
|
|
|
| Other long-term liabilities |
|
| 754,763 |
|
|
| 754,762 |
|
| Operating lease liability, less current portion |
|
| 12,256,587 |
|
|
| 9,195,205 |
|
| Finance lease liability, less current portion |
|
| 792,484 |
|
|
| - |
|
| Long-term debt, less current portion |
|
| 45,661,186 |
|
|
| 55,136,231 |
|
| Accrued postretirement benefits |
|
| 672,064 |
|
|
| 666,222 |
|
| Accrued pension cost |
|
| 21,958,215 |
|
|
| 22,174,465 |
|
| Total Liabilities |
|
| 128,079,096 |
|
|
| 134,908,338 |
|
|
|
|
|
|
|
|
|
|
|
| Shareholders’ Equity |
|
|
|
|
|
|
|
|
| Voting Preferred Stock, no par value: |
|
|
|
|
|
|
|
|
| Authorized and unissued: 1,000,000 shares |
|
|
|
|
|
|
|
|
| Nonvoting Preferred Stock, no par value: |
|
|
|
|
|
|
|
|
| Authorized and unissued: 1,000,000 shares |
|
|
|
|
|
|
|
|
| Common Stock, no par value, Authorized: 50,000,000 shares |
|
| 33,737,465 |
|
|
| 33,586,165 |
|
| Issued: 9,086,096 shares in 2023 and 9,056,421 shares in 2022 |
|
|
|
|
|
|
|
|
| Outstanding: 6,238,413 shares in 2023 and 6,221,976 shares in 2022 |
|
|
|
|
|
|
|
|
| Treasury Stock: 2,847,683 shares in 2023 and 2,834,445 shares in 2022 |
|
| (22,790,230 | ) |
|
| (22,544,684 | ) |
| Retained earnings |
|
| 141,985,268 |
|
|
| 138,985,852 |
|
| Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
| Foreign currency translation |
|
| (1,323,007 | ) |
|
| (1,140,978 | ) |
| Unrealized gain on interest rate swap, net of tax |
|
| - |
|
|
| 1,449,754 |
|
| Unrecognized net pension and postretirement benefit costs, net of tax |
|
| (22,963,408 | ) |
|
| (23,721,414 | ) |
| Accumulated other comprehensive loss |
|
| (24,286,415 | ) |
|
| (23,412,638 | ) |
| Total Shareholders’ Equity |
|
| 128,646,088 |
|
|
| 126,614,695 |
|
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 256,725,184 |
|
| $ | 261,523,033 |
|
| 7 |
THE EASTERN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
| Nine Months Ended |
| |||||
|
|
| September 30, 2023 |
|
| October 1, 2022 |
| ||
| Operating Activities |
|
|
|
|
|
| ||
| Net income |
| $ | 5,068,480 |
|
| $ | 11,925,632 |
|
| Less: gain from discontinued operations |
|
| - |
|
|
| 1,042,465 |
|
| Income from continuing operations |
| $ | 5,068,480 |
|
| $ | 10,883,167 |
|
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
| 5,471,633 |
|
|
| 5,389,394 |
|
| Unrecognized pension and postretirement benefits |
|
| 635,677 |
|
|
| (477,560 | ) |
| Loss (Gain) on sale of equipment and other assets |
|
| 331,474 |
|
|
| (345,718 | ) |
| Provision for doubtful accounts |
|
| (88,353 | ) |
|
| 35,000 |
|
| Stock compensation expense |
|
| 151,300 |
|
|
| 699,454 |
|
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts receivable |
|
| 116,025 |
|
|
| (8,008,687 | ) |
| Inventories |
|
| 4,628,294 |
|
|
| (5,217,395 | ) |
| Prepaid expenses and other |
|
| 888,342 |
|
|
| (1,082,483 | ) |
| Other assets |
|
| 190,216 |
|
|
| 340,925 |
|
| Accounts payable |
|
| 1,499,401 |
|
|
| (537,072 | ) |
| Accrued compensation |
|
| 476,714 |
|
|
| (957,022 | ) |
| Other accrued expenses |
|
| (119,557 | ) |
|
| (1,046,094 | ) |
| Net cash provided by (used in) operating activities |
|
| 19,249,646 |
|
|
| (324,091 | ) |
|
|
|
|
|
|
|
|
|
|
| Investing Activities |
|
|
|
|
|
|
|
|
| Business Acquisition |
|
| (547,638 | ) |
|
| — |
|
| Issuance of Notes Receivable |
|
| — |
|
|
| (400,000 | ) |
| Payments received from notes receivable |
|
| 2,265,730 |
|
|
| 748,148 |
|
| Proceeds from sale of equipment |
|
| — |
|
|
| 2,171,073 |
|
| Purchases of property, plant, and equipment |
|
| (4,718,673 | ) |
|
| (1,734,553 | ) |
| Net cash (used in) provided by investing activities |
|
| (3,000,581 | ) |
|
| 784,668 |
|
|
|
|
|
|
|
|
|
|
|
| Financing Activities |
|
|
|
|
|
|
|
|
| Principal payments on long-term debt |
|
| (74,919,004 | ) |
|
| (5,688,866 | ) |
| Principal payments on short-term borrowings (revolver) |
|
| (300,029 | ) |
|
| (1,000,000 | ) |
| Proceeds from short term borrowings (revolver) |
|
| — |
|
|
| 10,000,000 |
|
| Proceeds from new long-term debt financing |
|
| 60,000,000 |
|
|
| — |
|
| Financing leases, net |
|
| 674,558 |
|
|
| (161,906 | ) |
| Purchase common stock for treasury |
|
| (245,546 | ) |
|
| (1,637,072 | ) |
| Dividends paid |
|
| (2,069,043 | ) |
|
| (2,054,875 | ) |
| Net cash used in financing activities |
|
| (16,859,064 | ) |
|
| (542,719 | ) |
|
|
|
|
|
|
|
|
|
|
| Discontinued Operations |
|
|
|
|
|
|
|
|
| Cash used in operating activities |
|
| - |
|
|
| (610,887 | ) |
| Cash used in discontinued operations |
|
| - |
|
|
| (610,887 | ) |
|
|
|
|
|
|
|
|
|
|
| Effect of exchange rate changes on cash |
|
| (36,737 | ) |
|
| (257,093 | ) |
| Net change in cash and cash equivalents |
|
| (646,737 | ) |
|
| (950,122 | ) |
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents at beginning of period |
|
| 10,187,522 |
|
|
| 6,602,429 |
|
| Cash and cash equivalents at end of period ¹ |
| $ | 9,540,786 |
|
| $ | 5,652,307 |
|
|
|
|
|
|
|
|
|
|
|
| Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
| Interest |
| $ | 2,482,362 |
|
| $ | 1,753,699 |
|
| Income taxes |
|
| 1,321,170 |
|
|
| 3,197,375 |
|
|
|
|
|
|
|
|
|
|
|
| Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
| Right of use asset |
| $ | 3,579,222 |
|
| $ | 1,743,518 |
|
| Lease liability |
|
| (4,484,838 | ) |
|
| (1,608,530 | ) |
|
|
|
|
|
|
|
|
|
|
| ¹ includes cash from assets held for sale of $0.4 million as of October 1, 2022 | ||||||||
| 8 |
| Reconciliation of Non-GAAP Measures | |||||||||||||||||
| Adjusted Net Income and EPS from Continuing Operations Calculation | |||||||||||||||||
| For the Three and Nine Months ended September 30, 2023 and October 1, 2022 | |||||||||||||||||
| ($000's) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
| Three Months Ended |
|
| Nine Months Ended |
| |||||||||||
|
|
| September 30, 2023 |
|
| October 1, 2022 |
|
| September 30, 2023 |
|
| October1, 2022 |
| |||||
| Net income from continuing operations as reported per generally accepted accounting principles (GAAP) |
| $ | 3,062 |
|
| $ | 4,496 |
|
| $ | 5,068 |
|
| $ | 10,883 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Earnings per share from continuing operations as reported under generally accepted accounting principles (GAAP): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Basic |
| $ | 0.49 |
|
| $ | 0.72 |
|
| $ | 0.81 |
|
| $ | 1.75 |
| |
| Diluted |
| $ | 0.49 |
|
| $ | 0.72 |
|
| $ | 0.81 |
|
| $ | 1.74 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Loss on sale of Wheeling, IL building, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 202 | A | |
| Gain on sale of Eastern corporate office building, net of tax |
|
| - |
|
|
| (474 | )B |
|
| - |
|
|
| (474 | )B | |
| Severance and accrued compensation, net of tax |
|
| - |
|
|
| - |
|
|
| 1,349 |
|
| C- |
| ||
| Greenwald final sale adjustment |
|
|
|
|
|
| - |
|
|
| 293 |
|
| D- |
| ||
| Associated Toolmakers, Ltd. closure, net of tax |
|
|
|
|
|
| - |
|
|
| 1,086 |
|
| E- |
| ||
| Total adjustments (non-GAAP) |
| $ | - |
|
| $ | (474 | ) |
| $ | 2,728 |
|
| $ | (272 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Adjusted net income from continuing operations |
| $ | 3,062 |
|
| $ | 4,022 |
|
| $ | 7,796 |
|
| $ | 10,611 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Adjusted earnings per share from continuing operations (non-GAAP): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Basic |
| $ | 0.49 |
|
| $ | 0.65 |
|
| $ | 1.25 |
|
| $ | 1.70 |
| |
| Diluted |
| $ | 0.49 |
|
| $ | 0.65 |
|
| $ | 1.24 |
|
| $ | 1.70 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| A) Loss on sale of building in Wheeling, IL | |||||||||||||||||
| B) Gain on sale of Eastern corporate office building | |||||||||||||||||
| C) Severance expenses associated with accrued compensation and severance related to the elimination of the Chief Operating Officer position and the departure of the former Chief Executive Officer | |||||||||||||||||
| D) Final settlement of working capital adjustment associated with Greenwald sale | |||||||||||||||||
| E) Associated Toolmakers, Ltd. closure costs | |||||||||||||||||
| 9 |
| Reconciliation of Non-GAAP Measures |
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Adjusted EBITDA from Continuing Operations Calculation |
|
|
|
|
|
|
|
|
|
| ||||||
| For the Three and Nine Months ended September 30, 2023 and October 1, 2022 |
|
|
|
|
|
|
| |||||||||
| ($000's) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
|
| September 30, 2023 |
|
| October 1, 2022 |
|
| September 30, 2023 |
|
| October 1, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Net income from continuing operations as reported per generally accepted accounting principles (GAAP) |
| $ | 3,062 |
|
| $ | 4,496 |
|
| $ | 5,068 |
|
| $ | 10,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
| 1,068 |
|
|
| 646 |
|
|
| 2,575 |
|
|
| 1,584 |
|
| Provision for income taxes |
|
| 984 |
|
|
| 1,423 |
|
|
| 1,679 |
|
|
| 3,498 |
|
| Depreciation and amortization |
|
| 1,851 |
|
|
| 1,756 |
|
|
| 5,472 |
|
|
| 5,389 |
|
| Loss on sale of Wheeling, IL building |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 269 | A |
| Gain on sale of Eastern corporate office building |
|
| - |
|
|
| (624 | )B |
|
| - |
|
|
| (624 | )B |
| Severance and accrued compensation |
|
| - |
|
|
| - |
|
|
| 1,799 | C |
|
| - |
|
| Greenwald final sale adjustment |
|
| - |
|
|
| - |
|
|
| 390 | D |
|
| - |
|
| Associated Toolmakers, Ltd. closure, net of tax |
|
| - |
|
|
| - |
|
|
| 1,448 | E |
|
| - |
|
| Adjusted EBITDA from continuing operations |
| $ | 6,965 |
|
| $ | 7,697 |
|
| $ | 18,431 |
|
| $ | 20,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| A) Loss on sale of building in Wheeling, IL | ||||||||||||||||
| B) Gain on sale of Eastern corporate office building | ||||||||||||||||
| C) Severance expenses associated with accrued compensation and severance related to the elimination of the Chief Operating Officer position and the departure of the former Chief Executive Officer | ||||||||||||||||
| D) Final settlement of working capital adjustment associated with Greenwald sale | ||||||||||||||||
| E) Associated Toolmakers, Ltd. closure costs | ||||||||||||||||
| 10 |
EXHIBIT 99.2
The Eastern Company (NASDAQ:EML) Q3 2023 Earnings Conference Call
November 8, 2023 11:00 AM ET
Company Participants
Ernie Hawkins - Corporate Controller
Mark Hernandez - President and CEO
Nicholas Vlahos - Chief Financial Officer
Conference Call Participants
Ross Davisson - Banneton Company
Operator
Greetings. And welcome to The Eastern Company’s Third Quarter of Fiscal Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]
Please note, this conference is being recorded. I will now turn the conference over to your host, Ernie Hawkins, Corporate Controller at The Eastern Company. You may begin.
Ernie Hawkins
Good morning and thank you everyone for joining us this morning for a review of Eastern’s results for the third quarter of 2023. With me on the call are Eastern’s President and CEO, Mark Hernandez; and Eastern’s CFO, Nicholas Vlahos.
We issued an earnings press release yesterday after the market closed. If anyone has not yet seen the release, please visit the Investors section of the company’s website, www.easterncompany.com, where you will find the release under Financial News.
Please note that some of the information you will hear during today’s call will consist of forward-looking statements about the company’s future financial performance and business prospects, including without limitation, statements regarding revenue, gross margin, operating expenses, other income and expenses, taxes, and business outlook.
These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward-looking statements. We undertake no obligation to review or update any forward-looking statements to reflect events or circumstances that occur after the call.
For more information regarding these risks and uncertainties, please refer to risk factors discussed in our SEC filings including Form 10-K filed with the SEC on March 14, 2023, for the fiscal year 2022 and Form 10-Q filed with the SEC on November 7, 2023.
In addition, during today’s call, we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of Eastern’s performance. These non-GAAP measures should be considered, in addition to and not as a substitute for or an isolation from GAAP results. A reconciliation of each of the non-GAAP measures discussed during today’s call to the most directly comparable GAAP measure can be found in the earnings press release.
With that introduction, I will turn the call over to Mark.
Mark Hernandez
Thank you, Ernie. Good morning to those who joined us by phone and those participating via the web. As is our practice, I am going to begin today’s call with some high-level observations about our performance and market conditions during the past quarter. I will then turn the call over to Nick, who will provide a more detailed review of the quarter’s financial results. After that, I will come back and update you on the progress we have made with various additional activities to transform Eastern’s operations and enhance shareholder value.
All these build on four basic pillars I have described to you in earlier calls, disciplined operations, effective capital allocation and utilization, a strong commercial business focus and value adding acquisitions.
Today, I am pleased to announce the second consecutive quarter of improved financial performance with the improvements in working capital, margin, and earnings per share from continuing operations.
We have been moving ahead quickly with the implementation of our operational improvement plan and cost reduction efforts. And as we expected, these results became increasingly evident as the year progressed.
All these -- all of the changes we have been making are based on a ground-up review of Eastern’s businesses, products and markets that we undertook shortly after I became CEO in late January. I am delighted that our improvement initiatives are making so much progress, and just as important, I remain confident that our team’s hardware work will become more apparent in coming quarters.
Let’s take a quick look at some key developments. For the nine months ending September 30, 2023, cash flow from operations increased by almost $20 million compared to the same period in 2022.
As Nick will discuss in more detail, our balance sheet continues to strengthen due to our operational improvements, enabling us to pay down another $5 million in debt during quarter three and positioning us well for the future actions to create bigger, better and more profitable company.
On a sequential basis, our gross margins continue to rise reaching 25% in this year’s third quarter from 22% in the second quarter of 2023 and helping us achieve earnings per share of $0.49 from continuing operations. Our unwavering commitment to discipline operations and commercial business focus drove this result.
Over the past nine months, we systematically worked on resetting our commercial relationships to those that are mutually beneficial. We completed this initiative in the third quarter and now have fully transitioned to our new commercial structure for our legacy products. We believe establishing a sound foundation for earnings growth -- earnings and growth in the future.
| 2 |
As I mentioned in our Q2 call, we expected some headwinds from macroeconomic factors in the third quarter and also saw a pause in orders related to new product launches in the automotive industry.
In addition, the global supply chain finally returned to a pre-pandemic state. Our customers reduced the number of excess orders they have previously placed as a precautionary measure. Nonetheless, our backlog increased 4% year-over-year as of quarter end.
In addition, more recently, with the fears of deep recession put to rest, the automotive market has strengthened along with Eastern’s order flow, and we expect 2023 to end on a solid note for our company.
With that backdrop, I will turn the call over to Nick.
Nicholas Vlahos
Thank you, Mark, and good morning, everyone. I will provide a quick review of the quarter’s financial results. Net sales from continuing operations declined 8% to $65.6 million from $71.6 million in the third quarter of 2022, primarily due to lower demand for truck accessories and returnable transport packaging products.
Price increases and sales of new products contributed 6%. New products included various truck mirror assemblies, rotary latches, D-rings and mirror cams. Price increases primarily reflect our program to recover increases in raw material and freight costs.
Gross margin as a percentage of sales was 25% in the third quarter, compared to 23% in last year’s period and up from 22% in the second quarter of 2023. The quarter-over-quarter increase reflected improved price cost alignment, particularly with respect to increases in raw material costs.
As a percentage of net sales, product development expenses were 2.2%, compared to 1.4% for the third quarter of 2022.
Selling, general and administrative expenses were $9.7 million, compared to $10.1 million for the third quarter of 2022, a decrease of $0.4 million or 4%, primarily due to lower legal, professional selling costs and payroll related expenses.
Other income decreased $1.3 million to negative $0.1 million in the third quarter of 2023 compared to the corresponding period in 2022. This decrease primarily reflected unfavorable pension costs of $300,000 in this year’s third quarter. While in the prior year period, the company had a favorable pension cost adjustment of $400,000 and a gain on the sale of our corporate office building for $600,000.
Net income from continuing operations for the third quarter of 2023 was $3.1 million or $0.49 per diluted share, compared to $4.5 million or $0.72 per diluted share for the comparable period in 2022.
Adjusted EBITDA from continuing operations, a non-GAAP measure for the third quarter of 2023 was $7 million, compared to $7.7 million for the third quarter of 2022.
During the first nine months of 2023, we increased our cash flow from operations by $19.6 million when compared to the same period in 2022. The improvement reflects a reduction in cash used to support working capital, primarily a $4 million decrease in inventory.
By comparison, last year cash was used to ensure the availability of inventory to meet customer demand in light of the supply chain constraints. With this cash flow, we paid down more than $5 million of debt during the third quarter and year-to-date more than $15 million, a record level of debt paydown for Eastern.
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At the end of the third quarter, our senior net leverage ratio was 1.85:1, down from 1.95 at the end of the second quarter. In addition, we invested $4.7 million in capital expenditures paid dividends of $2.1 million in the first nine months of 2023.
For the third quarter, cash flow from operating activities was $5.7 million, compared to $2.2 million for last year’s third quarter. As a result, inventory turnover improved to 3.5 compared to 3.2 for last year’s period.
That completes my financial review. I will now turn the call back to Mark.
Mark Hernandez
Thanks, Nick. There are a few more points I’d like to bring to everyone up to date on our business. First, as I have mentioned on earlier calls this year to become more efficient and optimize performance, we have been taking a close look at every aspect of our operations of our three divisions. Where needed, we have also been making tough decisions and taking action steps.
For example, we recently brought in new managers to lead Big 3 Precision products. The division -- new division President and its new General Manager, have the right mix of experience in driving manufacturing performance and efficiencies to strengthen Big 3’s existing business and take fuller advantage of opportunities in custom returnable packaging and blow mold tools.
Second, the integration of Sureflex, a manufacturer of tractor-trailer, electric cable, fixing cables and assemblies. We put -- we have proceeded smoothly -- has proceeded smoothly since we acquired the assets in the company last June.
As a reminder, we acquired these assets to vertically integrate our trailer hose business and expand Velvac’s production capabilities. We are now positioned to achieve cost efficiencies by producing additional products in-house. Although by itself, the Sureflex acquisition was not big enough to move the needle, it’s a good indicator of our future strategy and approach.
One additional point of information before we open the floor to questions, as I mentioned in our Q2 call, we have started to expand our Investor Relations activities. Next week, we will be participating in the Sidoti Conference, which is focused specifically on small and micro-cap companies and the institutions that invest in their securities.
We will issue an advisory announcement soon about the conference, so you can look for the details on our IR website in just a day or two. I hope you are listening to our webcast at the conference on Wednesday, November 15th. We will also hold virtual one-on-one meetings with buy-side, so we can inform them of our new business strategy and improved financial results Eastern is generating.
Now let’s proceed to questions. Operator, can you please give the instructions to the investors who have joined via the conference call on how to enter a question.
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Question-and-Answer Session
Operator
Certainly. [Operator Instructions]
Mark Hernandez
Thank you. We will now address the questions via the web first and then return to the telephone questions.
Ernie Hawkins
First question from the web, your debt paydown has certainly been strong this year. Do you expect that to continue going forward and at approximately what rate?
Mark Hernandez
So, I will take the first part of this and then, Nick, you can answer. What we anticipate is working on continuous flow operations so that meaning that our performance is consistent quarter-over-quarter, that should yield our ability to continue to pay down debt.
Our disciplined operations are focused on just that, so that we don’t have variation in quarter-over-quarter performance going forward. So, we anticipate that the debt paydown will continue at this rate or higher based on how we are performing going forward. Nick, do you have anything to add?
Nicholas Vlahos
I think you summed it up well, Mark.
Mark Hernandez
Okay.
Ernie Hawkins
Next question, Mark mentioned four pillars on which Eastern strategy and deployment are based. Please remind us what those principles and the most important elements are.
Mark Hernandez
So, the four pillars I mentioned earlier in this call is disciplined operations, making sure that we do everything every day to run our businesses, looking at every dollar, capturing every dollar and selling all our products in a timely fashion. That’s Pillar one.
Pillar two is capital utilization allocation, looking at how we spend our capital within our businesses and trying to reduce it to become more efficient company, and secondly, is that we are investing our capital, our CapEx in projects that have high rates of return and return value to Eastern.
Our third pillar is strong commercial business focus. This is where we are working with our customers and the relationships that we have with customers, like I said earlier, that it’s mutually beneficial. We don’t want to take advantage of anybody, but we also don’t want people to take advantage of us. So, we will get -- we are going to price appropriately and we are going to have be good stewards of our business going forward.
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And then, lastly, if we do the first three correctly and we have been is value added in acquisitions. We will move forward our value-added acquisitions in 2024. Things that make sense for us that can allow us to vertically -- further vertically integrate our businesses and reduce our cost structures with the hopes of growing the business, not the hopes, with the intention of growing the business so that we can further add on a larger acquisition in the future.
Ernie Hawkins
Thanks Mark. Do you expect further growth in gross margin in Q4 and beyond?
Mark Hernandez
Yeah. Like I said, the pricing initiative and the customer resetting was completed in the third quarter. However, the impacts of all that work haven’t fully been implemented this year and that’s purely on legacy products that are going to flow through in the next quarter and into the beginning of next year.
I just want to keep in mind that our new products, the third stuff that we are quoting today has a different standard by which we are quoting and the businesses that we generate from those new programs are at a significant increase of our gross margins going forward.
Ernie Hawkins
Okay. How much of the improvement and gross margin came from a normalizing supply chain environment and lower raw material prices versus the pricing actions that we have been taking as a result of the new program?
Mark Hernandez
I would -- to put a number on, I would say, 90% came from the resetting of our commercial relationships and 10% was fixing the costs -- the logistics costs and dealing with raw material going forward. So we have transitioned ourselves and we are in a much better position going forward to not get -- not stumble on macroeconomic conditions with our customers going forward. Okay. All right. Thank you, Ernie. Operator, are there any questions on the conference call?
Operator
Yes. We did have one question come in. [Operator Instructions] And our question that we have in queue is coming from Ross Davisson from Banneton Company. Ross, your line is live.
Ross Davisson
Hey, Mark. Hey, Nick. Thanks for taking the question. I just kind of continuing on the theme of gross margin, maybe just more high level. Is there anything about this quarter’s gross margin figure, which was great to see and clearly shows your strategy having effect? Is there anything about it that we should interpret or had a sort of a one-time benefit, like any catch-up or anything like that that would make this level of gross margin unsustainable, notwithstanding other changes that might be happening?
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Mark Hernandez
Well, Ross, when we undertook this, we went through the pricing side and the commercial reset of our relationships. That is a one-time foundational pillar that we have built on. But we are going to build on that going forward with the new programs that we do launch. So, I don’t think it’s a one-time thing.
One thing that help us with the gross margin that probably is a one-time is the resetting of our supply chain. Clearing out the precautionary orders that were -- with our bottlenecking our inventory levels and reducing our operations ability to return earnings to our company.
So we will move forward with that. That’s a one-time thing, but it’s small in comparison to the other commercial aspects that we are doing and then the future growth of new programs and how we are pricing, how we are positioning ourselves going forward will add other values.
Now on the cost side, we are going through all our costs, because material expenditures are the single largest item that we expense and so we are going through a rapid analysis of what our cost side is and seeing if we can do more -- do better with the One Eastern strategy for all our direct material procurement and our indirect material expenses.
Ross Davisson
Got it. Okay. Okay. So, it sounds like, the rate -- I mean, clearly the rate change can’t stay the same forever, I get that. Like the level you are at. There’s nothing super unusual it sounds like. There’s no reason to believe it can’t be sustainable. Is it fair summary?
Mark Hernandez
Yeah. We are always trying to move forward. I mean, I have an internal objective of 30% gross margin. Will we ever get there? I don’t know. We are going to try though and with the pursuit of that aspirational target, we hope to not backslide and always move forward with our gross margin actions.
Ross Davisson
Got it. Got it. Thank you. And then just on the backlog, you talked about the increase year-over-year. It seems like an even bigger increase sequentially about $14 million. Can you remind me, is that -- is some of that a seasonal effect or is that showing us some sort of a little bit of a rebound happening in sales potentially?
Mark Hernandez
The way I look at it, Ross, is that, it’s a rebound, we did -- the middle of the year, we saw quite a bit of softening or delayed in orders coming in and now with the program launches -- they haven’t changed the end dates of these program launches. They basically snow plowed a lot of the demand and that’s what we are seeing with the building of our backlog, because they are releasing orders to us, because they haven’t changed their launch dates. We see that as a positive going forward into 2024.
Ross Davisson
Got it. Okay. Well, that’s encouraging. I mean, you mentioned -- just one more thing, I mean, you mentioned the fears of a deep recession put to rest and sort of be an encouraging sign going towards the end of the year. I mean, truck manufacturing does seem like it’s held up really well, auto -- motor vehicle seems a little bit more challenging. Any else you can say about sort of the current environment in terms of what you are seeing with your customers?
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Mark Hernandez
Yeah. So, the ACT who does the truck market analysis is predicting some softening of the Class 8 market. However, that’s more than made up for with medium duties segments. So, we think the commercial vehicle space will still be strong going in or at least equal to what it was this year.
The commercial vehicle space has been limited by suppliers, particularly on frame rails. As they work through that bottleneck of supply, we have indications that all the OEMs want to produce more in 2024 than it did in 2023.
On the automotive side, yes, the turmoil of the last few months in the automotive industry has caused the automotive companies to take a pause on how they move forward with their program launches.
But like I said, they haven’t changed their dates and the forecast for 2024 for program launches is substantially higher than it was in 2023. We look at those as positive indicators going forward for 2023 in the automotive segment.
Ross Davisson
Okay. That’s great. That’s really helpful. I appreciate all the color. Thank you.
Operator
Thank you. There were no other questions from the lines at this time. I would now like to hand the call back to Mark Hernandez for closing remarks.
Mark Hernandez
Okay. Thanks, Operator. Thanks again for joining us today. You have heard our strategy and focus on bringing positive changes and improvements -- improved results in 2023, establishing a sound foundation for the future.
Going forward, we remain committed to drive earnings, cash flow, paying down debt and when appropriate, pursuing M&A opportunities to accelerate our objectives. We look forward to sharing more evidence of our progress with you after the fourth quarter. If you would like more information in the meantime, please reach out to us. Thank you.
Operator
Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
| 8 |
Cover |
Nov. 07, 2023 |
|---|---|
| Cover [Abstract] | |
| Entity Registrant Name | The Eastern Company |
| Entity Central Index Key | 0000031107 |
| Document Type | 8-K |
| Amendment Flag | false |
| Entity Emerging Growth Company | false |
| Document Period End Date | Nov. 07, 2023 |
| Entity File Number | 001-35383 |
| Entity Incorporation State Country Code | CT |
| Entity Tax Identification Number | 06-0330020 |
| Entity Address Address Line 1 | 3 Enterprise Drive |
| Entity Address Address Line 2 | Suite 408 |
| Entity Address City Or Town | Shelton |
| Entity Address State Or Province | CT |
| Entity Address Postal Zip Code | 06484 |
| City Area Code | 203 |
| Local Phone Number | 729-2255 |
| Security 12b Title | Common Stock, No Par Value |
| Trading Symbol | EML |
| Security Exchange Name | NASDAQ |
| Written Communications | false |
| Soliciting Material | false |
| Pre Commencement Tender Offer | false |
| Pre Commencement Issuer Tender Offer | false |