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Strattec Security Corp. Reports Operating Results (10-Q)

May 08, 2009 | About:

Strattec Security Corp. (STRT) filed Quarterly Report for the period ended 2009-03-29.

Strattec Security Corporation designs develops manufactures and markets mechanical locks electro-mechanical locks and related products for automotive manufacturers with operations in the United States Canada and Mexico. The company also produces precision zinc die castings for the transportation security and small engine industries. The company's principal products are locks and keys for cars and trucks. Strattec Security Corp. has a market cap of $50.4 million; its shares were traded at around $15.4608 with and P/S ratio of 0.3.

Highlight of Business Operations:

Net sales for the three months ended March 29, 2009 were $29.3 million compared to net sales of $38.4 million for the three months ended March 30, 2008. Sales to our largest customers overall were significantly lower in the current quarter compared to the prior year quarter. Sales to General Motors Corporation in the current quarter were $6.6 million compared to $10.1 million in the prior year quarter due to lower vehicle production volumes, partially offset by the takeover of certain passenger car lockset production from another supplier. The prior year quarter sales to General Motors were impacted by production reductions as a direct result of a strike called by the UAW against a major General Motors supplier reducing our sales by approximately $1.2 million. Sales to Chrysler LLC were $11.1 million in the current quarter compared to $9.7 million in the prior year quarter. The increased Chrysler sales were due to $5.2 million of sales generated by SPA relating primarily to the products supplied on Dodge, Chrysler and Volkswagen minivans, offset by a combination of lower vehicle production volume and reduced component content in the lock products we supply. Sales to Ford Motor Company were $3.6 million in the current quarter compared to $5.0 million in the prior year quarter, and sales to Delphi Corporation were $1.2 million in the current quarter compared to $3.8 million in the prior year quarter. The lower sales to Ford and Delphi were due to lower vehicle production volumes. Sales during the current quarter were weaker than initially anticipated for the above four customers due to their additional production schedule cut backs during the months following the Christmas holiday shutdown.

The average zinc price paid per pound decreased to $1.20 in the current quarter from $1.49 in the prior year quarter. During the current quarter, we used approximately 1.0 million pounds of zinc. This resulted in decreased zinc costs of approximately $300,000 in the current quarter compared to the prior year quarter. The average brass price paid per pound decreased to $2.63 in the current quarter from $3.81 in the prior year quarter. During the current quarter, we used approximately 165,000 pounds of brass. This resulted in decreased brass costs of approximately $190,000 in the current quarter compared to the prior year quarter. Given the significant financial impact on us relating to changes in the cost of zinc and brass, our primary raw materials, commencing with fiscal 2008, we began quoting quarterly material price adjustments for changes in our raw material costs in our negotiations with our customers. Our success in obtaining these quarterly price adjustments in our customer contracts is dependant on separate negotiations with each of our customers. It is not a standard practice for our customers to include such price adjustments in their contracts. We have been successful in obtaining quarterly price adjustments in some of our customer contracts. However, we have not been successful in obtaining the adjustments with all of our customers.

Net other income was $104,000 in the current quarter compared to net other expense of $58,000 in the prior year quarter. The increase was primarily due to favorable transaction gains resulting from foreign currency transactions entered into by our Mexican subsidiaries in the current quarter compared to transactions losses in the prior year quarter and reduced losses on the Rabbi trust in the current quarter compared to the prior year quarter. The Rabbi trust funds our supplemental executive retirement plan. Transaction gains were $86,000 in the current quarter compared to losses of $123,000 in the prior year quarter. Losses related to the Rabbi trust totaled $65,000 in the current quarter compared to $173,000 in the prior year quarter. The investments held in the trust are considered trading securities.

Net sales for the nine months ended March 29, 2009 were $97.9 million compared to net sales of $121.1 million for the nine months ended March 30, 2008. Sales to our largest customers overall were significantly lower in the current period compared to the prior year period. Sales to General Motors Corporation in the current period were $30.8 million compared to $34.4 million in the prior year period due to lower vehicle production volumes, partially offset by the takeover of certain passenger car lockset production from another supplier. The prior year period sales to General Motors were impacted by production reductions during the prior year third quarter as a direct result of a strike called by the UAW against a major General Motors supplier reducing sales by approximately $1.2 million. Sales to Chrysler LLC were $26.1 million in the current period compared to $30.3 million in the prior year period. This sales reduction was due to a combination of lower vehicle production volume and reduced component content in the lock products we supply, offset by $6.5 million of sales generated by SPA relating primarily to the products supplied on the Dodge, Chrysler and Volkswagen minivans. Sales to Ford Motor Company were $8.8 million in the current period compared to $14.9 million in the prior year period and sales to Delphi Corporation were $5.2 million in the current period compared to $11.6 million in the prior year period. The lower sales to Ford and Delphi were primarily due to lower vehicle production volumes. Sales during the current period were weaker than initially anticipated for the above four customers due to their additional production cut backs announced after the Thanksgiving holiday and their additional production schedule cut backs during the months following the Christmas holiday shutdown.

The average zinc price paid per pound decreased to $1.21 in the current period from $1.56 in the prior year period. During the current period, we used approximately 4.2 million pounds of zinc. This resulted in decreased zinc costs of approximately $1.4 million in the current period compared to the prior year period. The average brass price paid per pound decreased to $3.15 in the current period from $3.81 in the prior year period. During the current period, we used approximately 660,000 pounds of brass. This resulted in decreased brass costs of approximately $435,000 in the current period compared to the prior year period. As noted above, commencing with fiscal 2008, we began quoting quarterly material price adjustments for changes in our raw material costs in our negotiations with our customers. Our success in obtaining these quarterly price adjustments in our customer contracts is dependant on our separate negotiations with each of our customers. It is not a standard practice for our customers to include such price adjustments in their contracts. We have been successful in obtaining quarterly price adjustments in some of our customer contracts. However, we have not been successful in obtaining the adjustments with all of our customers.

Net other income was $884,000 in the current period compared to $408,000 in the prior year period. The increase was primarily due to favorable transaction gains resulting from foreign currency transactions entered into by our Mexican subsidiaries in the current period compared to transactions losses in the prior year period offset by increased losses on the Rabbi trust, which funds our supplemental executive retirement plan. Transactions gains were $1.2 million in the current period compared to losses of $77,000 in the prior year period. Losses related to the Rabbi trust totaled $595,000 in the current period compared to $158,000 in the prior year period. The investments held in the trust are considered trading securities.

Read the The complete ReportSTRT is in the portfolios of PRIMECAP Management, Charles Brandes of Brandes Investment.

Rating: 3.5/5 (2 votes)

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