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Strattec Security (NASDAQ: STRT) reported lower third-quarter fiscal 2026 sales, but said profitability improved as restructuring actions and operational changes continued to support margins. Management also highlighted strong cash generation despite a softer automotive production environment and ongoing impacts from electric vehicle (EV) program cancellations.
President and Chief Executive Officer Jennifer Slater said the company “delivered another solid quarter” and continued to make progress on its transformation plan. She noted that restructuring actions completed earlier generated $1.9 million in savings during the quarter, which she described as a peak level as Strattec begins to lap benefits from those earlier moves.
Strattec generated $11.4 million in operating cash flow in the quarter and ended the period with $107 million in cash on hand. Slater said the company’s liquidity provides flexibility to continue investing, support customers, and navigate a dynamic industry backdrop.
“While sales were down from prior year, the decline was in line with expectations, and we continued to improve profitability, generate strong cash flow, and maintain a very strong balance sheet,” Slater said.
Chief Financial Officer Matthew Pauli said third-quarter sales declined 4.5% year over year. He attributed the decrease to lower volume and electric vehicle program cancellations, partially offset by pricing benefits and tariff recoveries.
Pauli said the annual impact of customer cancellations on reduced EV platforms is approximately $9 million, with about two-thirds already reflected in year-to-date fiscal 2026 results. He also cited that the largest customer declines in the quarter were with Ford and Hyundai Kia, both down a little more than 10% year over year. Sales to Tier 1 customers and Stellantis increased as those customers raised production.
By product category, Pauli said door handles and keys and locksets were steady, while power access and latches were down versus the prior year. Slater said the decline in power access was tied to customer build timing at Hyundai-Kia and Ford and was not expected to have a long-term impact.
Gross profit was $22.7 million, compared with $23.1 million in the prior-year quarter. Gross margin expanded by 50 basis points to 16.5%, which Pauli said reflected the value of Strattec’s transformation actions.
The quarter included approximately $1.7 million of restructuring savings and recoveries related to canceled customer programs. These benefits were partly offset by higher labor and benefit costs, incremental tariff costs, and foreign exchange pressure.
Pauli said incremental tariff costs have been running at an annual rate of approximately $5 million to $7 million, about half of which were IEEPA tariffs. He said Strattec has recovered a majority of tariff costs on a delayed basis through price increases or pass-throughs to original equipment manufacturers, and that the company plans to pursue past IEEPA tariff recoveries from the government, which would then be passed back to customers.
Strattec also made additional changes within its Mexico operations expected to provide $800,000 in incremental annualized savings beginning in the fourth quarter. Slater said the company is balancing cost optimization with the need to avoid disruptions to delivery or quality for customers.
Net income attributable to Strattec was $3.2 million, or $0.78 per diluted share, compared with $5.4 million, or $1.32 per diluted share, in the prior-year quarter. Adjusted net income was $3.7 million, or $0.90 per diluted share.
Pauli said the year-over-year earnings decline was primarily driven by unfavorable foreign exchange impacts in cost of goods sold and other income and expense. The company recorded a $900,000 currency loss in the current quarter, compared with a $235,000 foreign currency gain in the prior-year period. Pauli said most of the current-quarter loss reflected unrealized losses on peso forward contracts, driven by a sudden and short-lived strengthening of the U.S. dollar at quarter-end.
Pauli said the currency loss reduced earnings per share by $0.16, adding that it could reverse at the end of the fourth quarter depending on peso trading levels and mark-to-market accounting requirements.
Adjusted EBITDA was $10.1 million, down from $12.5 million in the prior-year period, with foreign exchange cited as the primary reason for the decline. On a year-to-date basis, adjusted EBITDA was $37.9 million, up 23% from the prior-year period, while earnings per share rose 46%.
Slater said Strattec’s priorities include disciplined execution of its transformation plan, including daily operational execution, stronger processes, talent upgrades, and improved systems. She said the company is working to build a more predictable and higher-performing business.
Management also outlined growth priorities: capturing more content with existing customers, participating earlier in advanced development on new platforms, and developing relationships with a more diverse set of customers that have U.S. production sites and are seeking local sourcing.
Slater said the company’s product strategy is anchored around engineering-led access systems organized into three categories: permission, motion, and hold. She said Strattec is defining technical product roadmaps aligned with customer requirements and current and future technologies.
“We are very early in our execution on these growth initiatives,” Slater said, adding that Strattec has the balance sheet and financial flexibility to support the broader transformation.
Looking ahead, Pauli said Strattec expects a moderate market environment, including the effects of canceled EV programs and lower production on certain key platforms. The company expects fourth-quarter revenue to decline 3% to 4% year over year, reflecting similar dynamics to the third quarter.
Over the next few years, Strattec is targeting gross margin of 18% to 20%, assuming the peso at its five-year average of MXN 19.50. Pauli said the company is currently operating in the 16% range. The company also targets selling, administrative and engineering expenses of approximately 10% to 11% of revenue over the next several years, excluding unusual items.
In the question-and-answer session, Sidoti & Company analyst John Franzreb asked what was needed to move gross margin from the current level toward the target range. Slater cited continued cost optimization, additional pricing opportunities, and, over the longer term, volume. Pauli said trailing 12-month gross margin was just above 16.5%, compared with 15% in the prior fiscal year, and said management has line of sight to reach the 18% to 20% target.
Slater said the company’s actions are intended to build “a stronger company with improved resilience, better earnings power, and a clearer path to long-term value creation.”
Strattec Security Corporation is a Wisconsin-based designer and manufacturer of mechanical and electronic locking systems for the global automotive market. Established more than five decades ago, the company supplies original equipment manufacturers (OEMs) and the aftermarket with a portfolio of lock and key solutions for passenger cars, light trucks, and commercial vehicles.
The company’s product range includes mechanical locking systems such as door lock cylinders, ignition lock modules, key blanks, and door handles, as well as electromechanical and keyless-entry systems.
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