Eastern (EML) Fiscal Q2 Revenue Rises

Globe and Mail

06-08-2025

Key Points
Gross margin declined by 2.1 percentage points to 23.3% compared to the second quarter of 2024, reflecting higher costs and supply mix changes.
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Eastern (NASDAQ:EML) is a diversified industrial company focused on engineered solutions for commercial, transportation, and industrial end-markets. The company reported its second-quarter fiscal 2025 results on August 5, 2025, revealing results that topped analyst expectations for both adjusted earnings per share and revenue. Adjusted earnings per share from continuing operations was $0.57 for Q2 FY2025, beating the $0.54 consensus non-GAAP EPS estimate, while GAAP revenue reached $70.2 million, ahead of the $68.87 million GAAP estimate. Despite these beats, both metrics fell compared to the prior year, with operating results pressured by ongoing weakness in core transportation and industrial end-markets. Overall, the period showed progress in cost-control and portfolio actions but highlighted ongoing market and structural pressures.
Metric Q2 2025 Q2 2025 Estimate Q2 2024 Y/Y Change
EPS from Continuing Operations (Non-GAAP) $0.57 $0.54 $0.65 (12.3%)
Revenue $70.2 million $68.87 million $72.6 million (3.3%)
Gross Margin 23.3% 25.4% (2.1 pp)
Adjusted EBITDA (Non-GAAP) $6.7 million $8.0 million (16.3%)
Net Income from Continuing Operations $2.0 million $4.1 million (50.2%)
Source: Analyst estimates for the quarter provided by FactSet.
Company Background and Recent Strategic Priorities
Eastern manufactures specialized components and engineered solutions used in transportation, industrial, and commercial applications. Its core businesses include Eberhard, which produces industrial latching and locking hardware; Velvac, a manufacturer of vision systems and mirrors for medium and heavy-duty trucks; and Big 3 Precision, which delivers packaging and racking products and blow molded tooling.
In recent years, the company has focused on reshaping its business portfolio by divesting lower-margin or non-core businesses, such as the sale of the Big 3 Mold ISBM (Injection Stretch Blow Molding) unit. It has also made targeted acquisitions to build out high-growth product categories, like tractor-trailer electrical assemblies. Efficient operations, cost management, and product innovation remain key drivers of its strategy, aiming to offset competitive pricing pressure and cyclical swings in core end-markets like automotive and heavy-duty trucks.
Quarter Highlights: Financial and Operational Trends
The period was marked by lower sales in key segments. Net sales decreased 3% compared to the second quarter of 2024. The primary headwind was persistent weak demand for heavy-duty truck mirror assemblies within the Velvac business. This decline was partly offset by stronger sales of latch and lock hardware products at Eberhard, which saw a boost from contracts supplying security hardware for the United States Postal Service's (USPS) new vehicle fleet.
GAAP gross margin fell to 23.3%, Gross margin was down 2.1 percentage points compared to the second quarter of 2024. Management attributed this decrease to higher costs for raw materials, as supply arrangements shifted from customer-supplied to company-sourced materials. Selling, general and administrative expenses rose by 9.4% compared to the prior-year period, mainly due to $1.8 million in restructuring charges. These charges included workforce reductions at Eberhard, Velvac, and at the corporate level, with the expectation of eventual cost savings beginning in 2026.
GAAP net income from continuing operations dropped from $4.1 million in the second quarter of 2024 to $2.0 million in the second quarter of 2025, as both lower sales and compressed margins outpaced gains from cost actions. Adjusted EBITDA (non-GAAP) was also down 15.4% compared to the same quarter last year. The drop in core profitability, alongside higher operating expenses, weighed on earnings, though results were helped by ongoing restructuring efforts. These initiatives are expected to deliver approximately $4 million in annual cash cost savings beginning in 2026.
Cash generation was a challenge during the period. The company repaid $5.9 million in debt year-to-date and repurchased approximately $2.1 million of its common stock year-to-date, with nearly 31,000 shares bought back in the quarter. Dividends remained flat at $0.11 per share for both Q1 and Q2. The balance sheet showed a decline in cash and equivalents to $9.1 million at quarter-end, with shareholders' equity (GAAP) up $3.8 million from December 28, 2024 to June 28, 2025 from retained earnings and capital management.
Business Segment and Product Updates
The Eberhard segment is known for manufacturing latches, locks, and related security hardware. In the period, it saw growth tied to the USPS vehicle upgrade contract, adding momentum to new product launches, supporting customer wins despite challenging market conditions.
Velvac, which designs and supplies vision systems and mirrors chiefly for heavy-duty trucks, continued to experience headwinds as weak production volumes impacted sales. Despite these challenges, the business has been focused on expanding into aftermarket channels and pursuing vertical integration -- that is, bringing more steps of the manufacturing process in-house for better cost control and efficiency. Management highlighted that the team remains intent on growing their share of the Class 8 truck market, even as overall demand in the segment remains soft.
Big 3 Precision manufactures packaging and racking systems and custom blow mold tooling. The business largely completed its restructuring, including divesting the ISBM blow molding unit and moving engineering operations from Dearborn to a more efficient facility in Sterling Heights, Michigan, a transition first announced in May 2025. This transition, paired with consolidating production in Centralia, Illinois, aims to streamline operations, lower costs, and make the supply chain more resilient by relying on U.S.-based resources. The segment remains positioned to benefit if North American customers resume higher levels of capital spending, particularly in returnable packaging.
The quarter also included a one-time gain of $2.02 million (GAAP) from the sale of discontinued operations, contributing positively to overall results but not impacting ongoing profitability. Management noted that anticipated annual savings from cost reductions will begin to be realized starting in 2026, though the current period reflects only the restructuring expenses without the benefit of these future savings. The quarterly dividend was unchanged at $0.11 per share.
Outlook and Forward View
The company did not provide full-year financial guidance for fiscal 2025. Management reiterated that efficiency initiatives, portfolio realignment, and a disciplined approach to capital allocation put it in a position to pursue targeted acquisitions. Cost savings of approximately $4 million per year are expected to begin accruing in 2026. Near-term caution remains appropriate, as the company continues to face demand risks in core truck and automotive markets and elevated raw material costs.
Investors should continue to monitor the pace of cost savings realization from the recent restructuring, progress toward securing additional contracts in higher-margin end-markets, and execution on accretive acquisitions. Segment-level detail and the impact from new postal-related contracts at Eberhard or further volume gains at Velvac and Big 3 Precision could shape the company's trajectory throughout fiscal 2025 and beyond. The quarterly dividend was unchanged at $0.11 per share.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
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