The Eastern Company Reports Results for the Fourth Quarter Fiscal 2020

A Rebound in Sales to $60.4 Million and Backlog to $85.0 Million, as Many Markets Return to Pre-Pandemic Demand

NAUGATUCK, CT / ACCESSWIRE / March 15, 2021 / The Eastern Company ("Eastern" or the "Company") (NASDAQ:EML), a manufacturer of unique engineered solutions serving industrial markets, today announced the results of operations for the fourth quarter and fiscal year ended January 2, 2021.

  • Eastern's comprehensive program to maintain the health and safety of employees resulted in no closures and no interruption of operations related to the COVID-19 pandemic at any of its 21 facilities during the fourth quarter of fiscal 2020.
  • Net sales were $60.4 million in the fourth quarter of fiscal 2020. The Company experienced a sharp recovery in demand to pre-pandemic levels across most of its end-markets. However, the divestiture of our composite panel businesses, delays in new automotive launches, and lower sales to mining customers caused fourth quarter sales to lag prior year comparable sales.
  • Earnings in the fourth quarter and fiscal year of 2020 were $0.23 and $0.86 per diluted share, respectively. Adjusted earnings for the fourth quarter and full-year of 2020 were $0.74 and $1.95 per diluted share, respectively. (See "Non-GAAP Financial Measures" below.)
  • Eastern's backlog of orders increased to $85.0 million as of January 2, 2021, compared to $71.2 million as of December 28, 2019, as demand for many of the Company's products and services has rebounded.
  • Eastern's cash position remained strong in 2020, highlighted by $20.7 million in cash generation from operations.

President and CEO August Vlak commented, "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."

Mr. Vlak added "Our fourth quarter 2020 net income of $1.4 million or $0.23 per diluted share before adjustments and $4.6 million or $0.74 per diluted share adjusting for one-time items reflect the strong recovery across our businesses. Adjusted earnings of $0.74 per diluted share represents earnings growth of 222% and 38%, respectively, over adjusted earnings per diluted share in the second and third quarters of 2020. This growth in adjusted earnings per share is attributable to rebounding demand in many of our markets, recent acquisitions, as well as the positive impact that our work to streamline the Company and focus on our core businesses has had. In the quarter, we recorded $3.2 million in impairment and structuring costs, net of tax, related to the divestitures of our composite panel business, the consolidation of our Eberhard operations, and the expansion of Velvac's manufacturing capacity in Mexico."

Mr. Vlak continued "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. The growth in backlog is the result of rebounding demand for truck accessories at Eberhard, the launch of a large new mirror program for Class 8 trucks, and strong demand for products and services in our blow mold tooling business, including the acquisition of Hallink."

Mr. Vlak also said "Our balance sheet remains strong and we believe that we have ample resources to navigate the improving business environment. As of January 2, 2021, our net leverage ratio was 3.04x, and our fixed charge coverage ratio was 2.10x - both of which are well within with our bank covenants of 4.25x and 1.25x, respectively. We reduced our total debt by $10.1 million in fiscal 2020."

Mr. Vlak concluded "Finally, I want to thank each and every one of our people. Their resilience throughout 2020 was exemplary -- protecting the health and safety of colleagues, ensuring the continuous operation of our factories, serving our customers and giving back to our communities. Because of our exceptional people, we were able to overcome the challenges of 2020 and are now in a position of strength."

Fourth quarter 2020 results

Net sales in the fourth quarter of fiscal 2020 were $60.4 million, a decline of 12% from $68.7 million in the fourth quarter of 2019. Sales decreased due to lower demand for automotive returnable packaging, the divestiture of Canadian Commercial Vehicles Corporation in June of 2020 and lower demand for mining products, partly offset by the impact of new program launches and stronger sales of blow mold tooling and related services.

Net income for the fourth quarter of fiscal 2020 was $1.4 million. In the fourth quarter of fiscal 2020, net income was negatively impacted by a non-cash goodwill impairment charge of $0.7 million, net of tax, as the Company announced the closure of Eberhard Hardware in Ontario, Canada. In addition, there were non-recurring restructuring expenses, factory relocation expenses, and transaction expenses in the amount of $0.9 million, net of tax, the majority of which related to severance pay incurred due to the closure of Eberhard Hardware; and a loss on disposition of Sesamee Mexicana and Canadian Commercial Vehicles Corporation of $1.6 million, net of tax.

Full year 2020 results

Net sales for fiscal year 2020 were $240.4 million, a decrease of 5% from $251.7 million in 2019. The decline in sales was primarily due to the decision by many of our industrial and consumer goods customers to close operations as a result of the COVID-19 pandemic and our divestiture of the Canadian Commercial Vehicle Corporation. Sales in 2020 reflect a full year of sales from the Big 3 Precision acquisition, as compared to four months of sales in 2019. The acquisition of Big 3 Precision closed on August 30, 2019.

Net income for fiscal 2020 decreased 59% to $5.4 million, or $0.86 per diluted share, from $13.3 million, or $2.12 per diluted share, in fiscal 2019. In fiscal 2020, net income was negatively impacted by $6.8 million due to non-recurring costs, net of tax, including goodwill impairment charges of $3.7 million net of tax, one-time restructuring, factory relocation, and transaction costs of $1.5 million, net of tax, and a loss on disposition of Sesamee Mexicana and Canadian Commercial Vehicle Corporation of $1.6 million, net of tax. In fiscal 2019, net income was adversely affected by non-recurring restructuring costs of $3.9 million, net of tax, 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 expenses.

Conference Call and Webcast

The Eastern Company will host a conference call to discuss its results for the fourth quarter and fiscal year 2020 and other matters on March 16, 2021 at 11:00AM Eastern Time. Participants can access the conference call by phone at (888) 506-0062 (toll free in US & Canada) or (862) 298-0702 (international) and use conference entry code 326514. Participants can also join via the web at https://www.webcaster4.com/Webcast/Page/1757/40199

About The Eastern Company

The Eastern Company manages industrial businesses that design, manufacture and sell unique engineered solutions to industrial markets, focusing on industries that offer long-term macroeconomic growth opportunities. The Company operates across two reporting segments - Engineered Solutions and Diversified Products -- from locations in the U.S., Canada, Mexico, U.K., Taiwan and China. More information on the Company can be found at www.easterncompany.com.

Safe Harbor for Forward-Looking Statements

Statements in this document about our future expectations, beliefs, goals, plans or prospects constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the rules, regulations and releases of the Securities and Exchange Commission. Any statements that are not statements of historical fact, including statements containing the words "believes," "intends," "continues," "reflects," "plans," "anticipates," "expects," "recovering," "opportunities" and similar expressions, should also be considered to be forward-looking statements. Readers should not place undue reliance on these forward-looking statements, which are based upon management's current beliefs and expectations. These forward-looking statements are subject to risks and uncertainties, and actual results might differ materially from those discussed in, or implied by, the forward-looking statements. The risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements include, but are not limited to, effects of the COVID-19 pandemic and the measures being taken to limit the spread and resurgence of COVID-19, including supply chain disruptions, delays in delivery of our products to our customers, impact on demand for our products, reductions in production levels, increased costs, including costs of raw materials, the impact on global economic conditions, the availability, terms and cost of financing, including borrowings under credit arrangements or agreements, and risks associated with employees working remotely or operating with reduced workforce; the scope and duration of the COVID-19 pandemic, including the extent of resurgences and how quickly and to what extent normal economic activity can resume; the timing of the development and distribution of effective vaccines or treatment of COVID-19, changing customer preferences, lack of success of new products, loss of customers, cybersecurity breaches, changes in competition in our markets, and increased prices for raw materials resulting from tariffs on imported goods or otherwise. There are important, additional factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including those set forth in our reports and filings with the Securities and Exchange Commission. We undertake 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.

Non-GAAP Financial Measures

The non-GAAP financial measures we provide in this report should be viewed in addition to, and not as an alternative for, results prepared in accordance U.S. GAAP. A reconciliation of non-GAAP financial measures referenced in this release to the nearest GAAP results is provided with this release.

To supplement the consolidated financial statements prepared in accordance with U.S. GAAP, we have presented adjusted earnings per share and adjusted EBITDA, 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 GAAP financial measures, such as net sales, net income (loss), diluted earnings (loss) per common share, or other measures prescribed by U.S. GAAP, and there are limitations to using non-GAAP financial measures. Adjusted earnings per share is defined as diluted earnings per share excluding, when they occur, the impacts of impairment losses, losses on sale of subsidiaries, transaction expenses, factory relocation expenses and restructuring costs. We believe that adjusted earnings per share provides important comparability of underlying operational results, allowing investors and management to access operating performance on a consistent basis.

Adjusted EBITDA is defined as net income before interest expense, provision for (benefit from) income taxes, and depreciation and amortization; in addition to these adjustments, we exclude, when they occur, the impacts of impairment losses, losses on sale of subsidiaries, transaction expenses, factory relocation expenses and restructuring costs. Adjusted EBITDA 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, including our business segments, to assess our performance relative to that of our competitors, and to establish operational goals and forecasts that are used in allocating resources.

We believe that presenting non-GAAP financial measures in addition to 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
August Vlak or John L. Sullivan III 203-729-2255

THE EASTERN COMPANY
Consolidated Statements of Income

  Year Ended 
  January 2,  December 28, 
  2021  2019 
Net sales $240,403,114  $251,742,619 
Cost of products sold  (186,744,637)  (189,890,070)
Gross margin  53,658,477   61,852,549 
         
Product development expense  (3,131,035)  (6,024,567)
Selling and administrative expenses  (35,439,858)  (35,719,188)
Goodwill impairment loss  (4,975,372)  - 
Loss on disposition of subsidiary  (2,158,863)  - 
Restructuring costs  (953,095)  (2,650,940)
Operating profit  7,000,254   17,457,854 
         
Interest expense  (2,744,800)  (1,857,961)
Other income  1,770,158   606,078 
Income before income taxes  6,025,612   16,205,971 
         
Income taxes  620,090   2,939,829 
Net income $5,405,522  $13,266,142 
         
Earnings per Share:        
Basic $0.87  $2.13 
         
Diluted $0.86  $2.12 


THE EASTERN COMPANY
Consolidated Balance Sheet

  January 2,  December 28, 
ASSETS 2021  2019 
Current Assets      
Cash and cash equivalents $16,101,635   $17,996,505 
Marketable securities  28,951    34,305 
Accounts receivable, less allowances: 2020 - $545,000; 2019 - $556,000  37,749,129    37,941,900 
Inventories:  53,112,393    54,599,266 
Current portion of note receivable  398,414    - 
Prepaid expenses and other assets  4,345,250    5,366,507 
Total Current Assets  111,735,772    115,938,483 
         
Property, Plant and Equipment  39,951,973    40,999,613 
         
Other Assets        
Goodwill  76,895,015    79,518,012 
Trademarks  5,404,284    5,404,283 
Patents, technology and other intangibles net of accumulated amortization  27,096,006    26,460,110 
Long term note receivable, less current portion  1,677,277    - 
Right of Use Assets  12,768,027    12,342,475 
   123,840,609    123,724,880 
         
TOTAL ASSETS $275,528,354   $280,662,976 
         
LIABILITIES AND SHAREHOLDERS' EQUITY 
Current Liabilities        
Accounts payable $23,507,719   $19,960,507 
Accrued compensation  3,675,223    3,815,186 
Other accrued expenses  4,121,568   2,967,961 
Current portion of lease liability  2,923,761    2,965,572 
Current portion of long-term debt  6,437,689    5,187,689 
Total Current Liabilities  40,665,960    34,896,915 
         
Deferred income taxes  2,899,075    5,270,465 
Other long-term liabilities  1,144,127   2,465,261 
Lease liability  9,883,168    9,376,903 
Long-term debt, less current portion  82,255,803    93,577,544 
Accrued postretirement benefits  1,185,139    1,007,146 
Accrued pension cost  33,188,623    28,631,485 
         
Total Shareholders' Equity  104,306,459    105,437,257 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $275,528,354   $280,662,976 
         

Reconciliation of expenses from GAAP to Non-GAAP EPS calculation
For the Three and Twelve Months ended January 2, 2021 and December 28, 2019

  Three Months Ended  Twelve Months Ended    
  January 2, 2021     December 28, 2019  January 2, 2021     December 28, 2019    
Net Income as reported per                     
generally accepted accounting principles (GAAP) $1,413,813     $4,972,327  $5,405,522     $13,266,142    
                          
Earnings Per Share as reported under generally accepted                         
accounting principles (GAAP):                         
Basic  0.23      0.80   0.87      2.13    
Diluted  0.23      0.79   0.86      2.12    
                          
Adjustments for one-time expenses:                         
Goodwill impairment loss, net of tax  715,026   A   -   3,716,937   A   -    
Loss on sale of Subsidiary, net of tax  1,619,147   I   -   1,619,147   I   -    
Transaction expenses  95,849   E   515,919   299,531   E   1,699,862   G 
Factory relocation, net of tax  299,600   C   -   475,244   C   -     
Restructuring costs, net of tax  489,408   H   144,908D,F 714,821   B,H   2,181,550   D,F 
Total adjustments for one-time expenses $3,219,030      $660,827  $6,825,680      $3,881,412     
                             
Adjusted Net Income (related to one time expenses);                            
(Non-GAAP) $4,632,843      $5,633,154  $12,231,202      $17,147,554     
                             
Adjusted Earnings per share                            
(related to one time expenses); (Non-GAAP)                            
Basic $0.74      $0.90  $1.96      $2.75     
Diluted $0.74      $0.90  $1.95      $2.73     
                             

A) Goodwill impairment
B) Cost incurred on disposition of Canadian Commercial Vehicles
C) Cost incurred on relocation of factory in Reynosa, Mexico
D) Cost incurred on the relocation of Composite Panels Technology
E) Cost incurred in the acquisition of Hallink RSB, Inc.
F) Costs incurred in the closure of Road IQ in Bellingham, WA
G) Costs incurred on the acquisition of Big 3 Precision
H) Costs incurred on announced reorganization of Eberhard Hardware Ltd
I) Loss on disposition of subsidiaries

Use of Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the United States ("GAAP"), we disclose certain non-GAAP financial measures including adjusted net income and adjusted earnings per diluted share. Adjusted net income and adjusted earnings per diluted share exclude one time related expenses. These measures are not in accordance with GAAP.

Management uses such measures to evaluate performance period over period, to analyze the underlying trends in our business including our business segments, 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, GAAP financial measures.

We believe that presenting non-GAAP financial measures in addition to 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.

Reconciliation of expenses from GAAP to Non-GAAP EBITDA calculation
For the Three and Twelve Months ended January 2, 2021 and December 28, 2019

   Three Months Ended         Twelve Months Ended      
   January 2, 2021         December 28, 2019         January 2, 2021         December 28, 2019      
                                        
Net Income/(loss) as reported per generally accepted accounting principles (GAAP)  1,413,813         4,972,327         5,405,522         13,266,142      
                                                    
Interest expense    663,517           883,425           2,744,800           1,857,961      
                                                    
Provision for/(benefit from) income taxes    (689,205)         404,796           620,090           2,939,829      
                                                    
Depreciation and amortization    2,333,286           2,647,402           8,477,512           6,454,881      
                                                    
Goodwill impairment loss    972,824      A      -           4,975,372      A      -      
                                                          
Loss on Sale of Subsidiary    2,158,863      I      -           2,158,863      I      -      
                                                          
Factory relocation    428,000      C      -           678,920      C      -      
                                                          
Restructuring costs    665,861      H      12,774      D,F      953,095      B,H      2,664,651      D,F 
                                                                
Transaction costs    95,849      E      515,919      G      299,531      E      1,699,862      G 
                                                                
Adjusted EBITDA  8,042,808            9,436,643            26,313,705            28,883,326         
                                                                

A) Goodwill impairment
B) Cost incurred on disposition of Canadian Commercial Vehicles
C) Cost incurred on relocation of factory in Reynosa, Mexico
D) Cost incurred on the relocation of Composite Panels Technology
E) Cost incurred in the acquisition of Hallink RSB, Inc.
F) Costs incurred in the closure of Road IQ in Bellingham, WA
G) Costs incurred in the acquisition of Big 3 Precision
H) Costs incurred on announced reorganization of Eberhard Hardware Ltd
I) Loss on disposition of subsidiaries

Use of Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles in the United States ("GAAP"), we disclose certain non-GAAP financial measures including adjusted net income and adjusted earnings per diluted share. Adjusted net income and adjusted earnings per diluted share exclude one time related expenses. These measures are not in accordance with GAAP.

Management uses such measures to evaluate performance period over period, to analyze the underlying trends in our business including our business segments, 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, GAAP financial measures.

We believe that presenting non-GAAP financial measures in addition to 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.

SOURCE: The Eastern Company



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