Exchange: NASDAQ | Sector: Consumer Cyclical | Industry: Auto Parts
Q2 2025
Published: Feb 7, 2025
Earnings Highlights
Revenue of $129.92M up 9.6% year-over-year
EPS of $0.32 increased by 26.9% from previous year
Gross margin of 13.2%
Net income of 1.32M
"I feel really positive about the progress that we're making, but I still think we're really early in the process. I'm seven months in, and I would say we're making good progress." - Jennifer Slater
Strattec Security Corporation reported a solid second quarter of fiscal 2025, achieving meaningful top-line momentum and notable margin and cash-flow improvements as part of a broader transformation plan. Revenue reached $129.9 million in Q2, up 9.6% year over year, driven by strength in higher-value content categories such as Power Access and engineered latches, while legacy keys/locksets declined. Gross profit rose to $17.2 million and gross margin expanded to 13.2%, aided by favorable FX and higher volumes, partially offset by higher labor costs and a one-time prior-year pricing recovery. Management emphasized ongoing cost-optimization initiatives, including a $1.2 million annualized savings program from Milwaukee operations and aggressive reduction of preproduction tooling balances (down $10.5 million since the start of the year).
Management also highlighted the strategic transformation underway—stabilizing the business, optimizing costs, and evaluating the product portfolio. The company reported $8.0 million of adjusted EBITDA for the quarter (6.1% adjusted EBITDA margin) and presented two non-GAAP measures to better illustrate ongoing profitability as investments in people, processes, and pricing actions unfold. Substantial cash generation continued, with $9.4 million of operating cash flow and free cash flow of approximately $8.5 million, contributing to a cash balance of $42.6 million at quarter-end. While near-term tariffs and macro headwinds present risks, Strattec remains focused on footprint optimization, pricing discipline, and commercial acceleration to support long-term value realization for shareholders.
Key Performance Indicators
Revenue
129.92M
QoQ: -6.57% | YoY:9.61%
Gross Profit
17.15M
13.20% margin
QoQ: -9.35% | YoY:27.07%
Operating Income
2.13M
QoQ: -57.85% | YoY:3 579.31%
Net Income
1.32M
QoQ: -64.38% | YoY:29.06%
EPS
0.33
QoQ: -64.13% | YoY:26.92%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $129.919 million in Q2 2025; YoY growth +9.61%; QoQ change −6.57% (reflecting seasonality and product mix within a quarter).
Gross Profit: $17.151 million; gross margin 13.20%; YoY gross profit up 27.07%; QoQ gross profit down 9.35% as price mix and volume effects shift.
Operating Income: $2.134 million; operating margin 1.64%; YoY operating income growth reported as 3,579.31% in ratios reflects a small base; underlying driver is improved mix and volume with cost control.
Net Income: $1.319 million; net margin 1.02%; YoY net income +29.06%; QoQ −64.38% (reflecting one-off items, FX impacts, and seasonality).
EPS (GAAP): $0.33 (diluted $0.32). Adjusted EBITDA: $8.0 million; Adjusted EBITDA margin 6.1% (up ~180 bps YoY);
Adjusted net income: $2.60 million or $0.65 per diluted share (non-GAAP).
Financial Highlights
Overview of material metrics and trend context:
- Revenue: $129.919 million in Q2 2025; YoY growth +9.61%; QoQ change −6.57% (reflecting seasonality and product mix within a quarter).
- Gross Profit: $17.151 million; gross margin 13.20%; YoY gross profit up 27.07%; QoQ gross profit down 9.35% as price mix and volume effects shift.
- Operating Income: $2.134 million; operating margin 1.64%; YoY operating income growth reported as 3,579.31% in ratios reflects a small base; underlying driver is improved mix and volume with cost control.
- Net Income: $1.319 million; net margin 1.02%; YoY net income +29.06%; QoQ −64.38% (reflecting one-off items, FX impacts, and seasonality).
- EPS (GAAP): $0.33 (diluted $0.32). Adjusted EBITDA: $8.0 million; Adjusted EBITDA margin 6.1% (up ~180 bps YoY);
Adjusted net income: $2.60 million or $0.65 per diluted share (non-GAAP).
- Cash Flow: Net cash provided by operating activities $9.44 million; Free cash flow $8.53 million; net change in cash $8.22 million; cash at end of period $42.63 million.
- Balance Sheet and liquidity: Total assets $355.90 million; total liabilities $127.74 million; total stockholders’ equity $204.54 million; cash and equivalents $42.63 million; total debt $13.00 million; net debt position negative $26.63 million (net cash).
- Working capital and efficiency: Current ratio 2.60; quick ratio 1.77; DSO 78.0 days; DIO 65.1 days; days payables outstanding 40.4 days; cash conversion cycle 102.7 days.
- Capital allocation: CapEx just under $1 million in Q2, $3.0 million in H1 2025; real estate listing for the Milwaukee HQ initiated (potential ~$17 million flag) as part of footprint optimization.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
129.92M
9.61%
-6.57%
Gross Profit
17.15M
27.07%
-9.35%
Operating Income
2.13M
3 579.31%
-57.85%
Net Income
1.32M
29.06%
-64.38%
EPS
0.33
26.92%
-64.13%
Key Financial Ratios
currentRatio
2.6
grossProfitMargin
13.2%
operatingProfitMargin
1.64%
netProfitMargin
1.02%
returnOnAssets
0.37%
returnOnEquity
0.65%
debtEquityRatio
0.06
operatingCashFlowPerShare
$2.34
freeCashFlowPerShare
$2.11
priceToBookRatio
0.82
priceEarningsRatio
31.88
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the Q2 earnings call (themes and quotes):
- Transformation and strategy: Jennifer Slater emphasized progress on turning Strattec into a stronger, more sustainable business with improved earnings power, while acknowledging the process is still early in its run. Quote: “I feel really positive about the progress that we're making, but I still think we're really early in the process. I'm seven months in, and I would say we're making good progress.”
- Pricing and portfolio: The management team highlighted pricing gains and portfolio optimization as core drivers of improved profitability. Quote (Matt Pauley): “Pricing that we achieved is across multiple different of our product categories and across multiple different OEMs.”
- Near-term actions and costs: The company outlined cost-reduction initiatives ( Milwaukee facilities optimization, headcount-related costs, and preproduction tooling reductions). Quote (Jennifer Slater): “pricing gains and the metrics to better understand our underlying performance are direct outcomes of our investment in our team.”
- Tariffs and external headwinds: Tariffs were acknowledged as a fluid issue, with the team noting ongoing conversations with customers and suppliers to understand implications and countermeasures.
- Execution of commercial strategy: The appointment of Shay Bardo as Chief Commercial Officer and the recent capture of ~$8 million in annualized pricing underscores the company’s emphasis on commercial discipline and price realization.
I feel really positive about the progress that we're making, but I still think we're really early in the process. I'm seven months in, and I would say we're making good progress.
— Jennifer Slater
Pricing that we achieved is across multiple different of our product categories and across multiple different OEMs.
— Matthew Pauley
Forward Guidance
Outlook and catalysts:
- Pricing trajectory: Management projects approximately $8 million in annualized pricing beginning in Q3 2025 as new, longer-term contracts are extended or adjusted; success depends on customer production and demand, but management expects to realize improved pricing in the near term.
- Margin and cost discipline: Ongoing cost optimization (e.g., Milwaukee facility rationalization, tooling cost recovery, and workforce-related costs) supports margin expansion; gross margin should benefit from product mix shifts toward Power Access and engineered latches, though currency and wage pressures remain headwinds.
- Tariffs and supply chain: Tariff dynamics remain a near-term risk that could influence footprint decisions and supplier terms. Strattec plans to remain proactive in customer/supplier discussions and to calibrate its footprint accordingly.
- Capex and capital structure: Capex guidance is being reevaluated for the year; management plans to balance investments in product programs and equipment with cash-flow generation and potential monetization of non-core assets (e.g., Milwaukee HQ). Key metrics to monitor include working capital cycles, preproduction cost recoveries, and the pace of pricing realization.
- Monitoring framework for investors: Track progression of the transformation milestones (cost optimization, portfolio rationalization, and pricing leverage), evolving product mix (Power Access vs legacy lines), tariff developments, and the execution of capital allocation decisions (real estate, CapEx, and potential M&A alternatives). Overall, the backdrop supports a constructive view provided pricing and cost actions translate into sustained EBITDA and free cash flow growth.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
STRT Focus
13.20%
1.64%
0.65%
31.88%
DORM
40.60%
15.20%
4.19%
16.16%
PLOW
29.90%
18.20%
10.30%
5.28%
MNRO
35.30%
4.38%
0.87%
38.22%
MPAA
19.80%
6.01%
-1.12%
-12.36%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Strategic thesis: Strattec is in the early-to-mid stage of a transformation aimed at stabilizing operations, reducing costs, and accelerating profitable growth through pricing discipline and portfolio optimization. The Q2 results demonstrate meaningful cash generation, a leaner cost structure, and a more favorable product mix toward higher-value content. Near-term catalysts include the realization of roughly $8 million in annualized pricing in Q3 and further tooling-cost recoveries and SG&A discipline. Risks center on tariff dynamics, OEM demand variability (notably Stellantis exposure), and execution risk as the company scales its transformation. Given a modest enterprise value multiple relative to some peers (EV/EBITDA around 24.7x) and solid liquidity, Strattec presents an opportunity for exposure to a manufacturing transformation within auto parts, contingent on sustaining pricing gains and cost actions while navigating tariff-related headwinds. Investors should monitor: (1) progression of pricing realization and its overlap with volume, (2) efficiency gains from Milwaukee optimization and capex discipline, (3) characterization of the Milwaukee real estate strategy, and (4) evolving tariff negotiations and their impact on footprint decisions.
Key Investment Factors
Growth Potential
Growth is anchored in higher-value content products (Power Access, engineered latches) and pricing leverage across multiple OEMs. The Q2 call highlighted roughly $8 million of annualized pricing and ongoing portfolio evaluation, which could yield further margin expansion if volume remains favorable and preproduction cost recoveries accelerate.
Profitability Risk
Key risks include tariff-driven cost pressures and potential shifts in OEM demand (notably Stellantis exposure), currency volatility (FX tailwinds helped gross margin in Q2), and execution risk around the transformation program. Customer concentration in North American OEMs and the potential for slower ramp of new programs could temper upside.
Financial Position
Strattec maintains a strong liquidity position with $42.6 million cash and minimal leverage (total debt $13.0 million; net debt negative $26.63 million). The company generated $9.44 million of operating cash flow in Q2 and ended the period with a robust current ratio of 2.60, supporting ongoing transformation initiatives and strategic optionality (e.g., Milwaukee real estate sale, CapEx reallocation).
SWOT Analysis
Strengths
Strong quarterly operating cash flow and free cash flow generation
Low debt and sizable cash balance enabling transformation investment
Clear pricing upside across multiple product lines and OEMs
Active portfolio optimization and cost-reduction initiatives (e.g., Milwaukee headcount/space optimization, tooling cost recovery)
Experienced leadership team with a new CFO focused on profitability and predictability
Weaknesses
Margin profile remains modest relative to many auto parts peers
Significant exposure to Mexico-based manufacturing and tariff risk
Working capital intensity and preproduction tooling balances requiring ongoing recovery
Opportunities
Expansion of Power Access and engineered latch content with new and existing customers
Further pricing enhancements across additional OEM programs
Strategic footprint optimization and monetization (sale of Milwaukee HQ) to unlock value
Portfolio rationalization to emphasize higher-margin, higher-growth products
Threats
Tariff/regulatory environment creating near-term cost and supply-chain uncertainty
Stellantis and other OEM program volatility affecting demand mix
Automotive industry cyclicality and potential slower-than-expected demand recovery
FX volatility affecting margin dynamics if currency moves reverse
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