Exchange: NASDAQ | Sector: Consumer Cyclical | Industry: Auto Parts
Q3 2025
Published: May 9, 2025
Earnings Highlights
Revenue of $144.08M up 2.4% year-over-year
EPS of $1.32 increased by 252.6% from previous year
Gross margin of 16.0%
Net income of 5.40M
"65% of our products are imported into the U.S. from our Mexico assembly operations, and of that volume, over 90% is USMCA compliant. Therefore, only about 6% of consolidated sales or $30 million is currently subject to the recent tariffs." - Matthew Pauli
Strattec Security Corporation (STRT) Q3 FY2025 Results Analysis — Margin Expansion, Tariff Management, and Transformation Progress in the Auto Parts Space
Executive Summary
Strattec Security Corporation delivered a solid Q3 FY2025, underscored by meaningful margin expansion, robust operating cash flow, and progress on its strategic transformation. Revenue stood at $144.1 million with gross profit of $23.1 million and a gross margin of 16.0%, up 560 basis points year over year, driven by pricing actions, FX benefits, and ongoing cost efficiencies. Net income reached $5.4 million ($1.32 per diluted share), and Adjusted EBITDA was $12.9 million (8.9% margin), a substantial uplift from the prior-year period. Management attributed the margin improvement to structural cost reductions, disciplined pricing, and currency benefits, even as tariff headwinds added approximately $0.8 million of tariff costs in the quarter and an anticipated annual tariff impact of $9–$12 million before mitigations.
The company’s transformation includes approximately $5 million in annualized savings from restructuring actions in Milwaukee and Mexico, with full run-rate benefits expected in Q1 2026. STRT’s liquidity remains robust, finishing the quarter with about $62.1 million in cash and roughly $47 million available under its revolver, enabling continued investments in product programs, productivity, and IT infrastructure while maintaining an orderly balance sheet. Capex guidance for the year sits around $7.5 million to $10 million, with some spending anticipated in Q4 as anticipated savings ramp.
Management signaled a cautiously constructive outlook: demand supported by higher-value content on existing programs, modest revenue growth aided by pricing/mix, and ongoing tariff mitigation across logistics, pricing discussions, and supply-chain shifts. The company also noted potential strategic actions, including the Milwaukee facility sale process, and remains focused on expanding margin discipline and operational agility to navigate volume and tariff uncertainty. Investors should monitor tariff trajectory and customer recoveries, the pace of restructuring benefits, and the execution of the go-forward CapEx and transformation agenda as key near-term drivers of profitability and cash flow.
Key Performance Indicators
Revenue
144.08M
QoQ: 10.90% | YoY:2.35%
Gross Profit
23.11M
16.04% margin
QoQ: 34.72% | YoY:57.35%
Operating Income
7.09M
QoQ: 232.01% | YoY:261.66%
Net Income
5.40M
QoQ: 309.10% | YoY:258.30%
EPS
1.34
QoQ: 306.06% | YoY:252.63%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $144.082 million for Q3 FY2025, up 2.35% YoY and 10.90% QoQ per reported metrics.
- Revenue: $144.082 million for Q3 FY2025, up 2.35% YoY and 10.90% QoQ per reported metrics.
- Gross Profit: $23.105 million; Gross Margin: 16.0% (up 560 bps YoY; up 280 bps sequentially).
- Operating Income: $7.085 million; Operating Margin: 5.12% (YoY margin up meaningfully).
- Net Income: $5.396 million; Net Margin: 3.75%; EPS (diluted): $1.32; Adjusted EPS: $1.50.
- Adjusted EBITDA: $12.9 million; Adjusted EBITDA Margin: 8.9% (up ~450 bps YoY).
- Cash Flow: Operating cash flow $20.71 million in the quarter; year-to-date operating cash flow $41.5 million; cash at period end $62.1 million; revolver availability ~$47 million.
- Capital Allocation: Year-to-date capex $4.2 million; full-year capex guidance ~ $7.5–$10 million; planned IT and productivity investments.
- Balance Sheet & Ratios: Current ratio 2.33; Quick ratio 1.72; Cash ratio 0.50; Debt/Equity ~0.06; Net cash position with minimal leverage; DSO ~82 days; Inventory turns ~1.60; AP turnover ~1.67.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
144.08M
2.35%
10.90%
Gross Profit
23.11M
57.35%
34.72%
Operating Income
7.09M
261.66%
232.01%
Net Income
5.40M
258.30%
309.10%
EPS
1.34
252.63%
306.06%
Key Financial Ratios
currentRatio
2.33
grossProfitMargin
16%
operatingProfitMargin
4.92%
netProfitMargin
3.75%
returnOnAssets
1.39%
returnOnEquity
2.56%
debtEquityRatio
0.06
operatingCashFlowPerShare
$5.13
freeCashFlowPerShare
$4.84
priceToBookRatio
0.76
priceEarningsRatio
7.38
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key takeaways from the Q3 earnings call include management emphasis on transformation progress, tariff risk management, and cash generation:
- Margin expansion and cash generation were highlighted as signs of earnings power returning, with gross margin up 560 bps YoY and Adjusted EBITDA up meaningfully. Quote: management attributed margin gains to pricing actions, FX benefits, and cost optimization, while noting tariff headwinds.
- Tariff exposure and mitigation were a central theme. The company estimates 6% of consolidated sales subject to recent tariffs, with annualized potential tariff costs of $9–$12 million before mitigation; about 30% mitigated to date, with ongoing recoveries pursued with customers. Quote: “65% of our products are imported into the U.S. from our Mexico assembly operations… only about 6% of consolidated sales… is currently subject to the recent tariffs.”
- Tariff mitigation and supply-chain actions were described as multi-faceted (logistics, pricing discussions, and sourcing). Management stated confidence in mitigating the full tariff exposure and recovering costs through these actions. Quote: “We feel confident that we can mitigate the full tariff exposure through all three of those things and we're working with our customers now on the process of recovery, which we expect to get full recovery.”
- Transformation progress and cost optimization were framed as ongoing with Mexico restructuring providing ~$5 million in annualized savings; full run rate expected in Q1 2026. Management also noted ongoing investment in talent and IT to support growth and efficiency.
- Product mix and pricing contributed to modest YoY sales growth, with higher-value content on existing programs cited as a key driver. Management emphasized that restructuring savings are incremental to the quarterly results and will materialize over the coming quarters.
- Capital allocation remained prudent with a focus on preserving liquidity amid tariff uncertainty, while capex is planned to support organic growth and productivity improvements. Q&A touched on CapEx expectations (roughly $7.5–$10 million annualized) and dividend considerations, with a cautious stance pending environment clarity.
65% of our products are imported into the U.S. from our Mexico assembly operations, and of that volume, over 90% is USMCA compliant. Therefore, only about 6% of consolidated sales or $30 million is currently subject to the recent tariffs.
— Matthew Pauli
We feel confident that we can mitigate the full tariff exposure through all three of those things and we're working with our customers now on the process of recovery, which we expect to get full recovery.
— Jennifer Slater
Forward Guidance
Assessment of forward-looking prospects uses management commentary and the current results trajectory:
- Revenue and margin trajectory: STRT delivered a solid Q3 with gross margin expansion and a growing Adjusted EBITDA base, suggesting continued operating leverage as price actions and cost optimization take hold. The company expects full restructuring savings to ramp through Q1 2026, which should further lift margins if pricing and mix hold.
- Tariff environment: Management projects annual tariff costs of $9–$12 million pre-mitigation, with approximately 30% already mitigated. The ongoing tariff task force, logistics re-routing, and commercial recoveries with customers are designed to continue reducing net tariff impact over time. Key risk is if tariff policy tightens or tariff recoveries lag.
- Capital allocation and liquidity: With cash around $62 million and ~$47 million available on the revolver, STRT retains flexibility to invest in product programs, IT, and efficiency projects while weathering macro volatility. CapEx guidance around $7.5–$10 million for the year (with most spend in the back half and IT upgrades) aligns with ongoing transformation investments.
- Strategic actions: Potential Milwaukee facility sale could unlock additional liquidity and strategic flexibility. The company remains focused on expanding higher-value content in existing programs and evaluating adjacencies post-optimization.
- Outlook for investors: The investment thesis hinges on continued margin expansion, successful tariff mitigation, and execution of the transformation program. Monitoring factors include tariff recovery timing, realisation of restructuring savings, customer price recoveries, and capex ROI. The baseline view is cautiously constructive with upside if margins continue to expand and tariff headwinds are progressively mitigated.
- achievability: Given the run-rate savings from restructuring expected in Q1 2026, and management’s track record of margin discipline and cash generation, the near-term targets appear achievable provided no material adverse shifts in auto production or tariff policy occur. Factors to monitor include tariff policy developments, customer demand stability, and the pace of price realization on key programs.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
STRT Focus
16.04%
4.92%
2.56%
7.38%
DORM
40.50%
15.70%
4.48%
15.71%
PLOW
23.90%
35.40%
12.40%
4.94%
MNRO
34.30%
3.26%
0.71%
40.45%
MPAA
24.10%
9.44%
0.87%
16.41%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Strattec is at an inflection point where margin expansion and cash generation are beginning to translate into real earnings power, supported by a multi-faceted transformation program and tariff mitigation plan. The Q3 results confirm the durability of the turnaround, with gross margin up 560 bps YoY and Adjusted EBITDA of $12.9 million, despite ongoing tariff headwinds. The key to sustaining upside will be the full realization of restructuring savings (ramped to full run rate in Q1 2026), continued pricing discipline and mix benefits, and the effective management of tariff costs through logistics optimization and customer commercial recoveries. On the balance sheet, STRT remains highly liquefied with ample liquidity to fund capex, opportunistic bolt-ons, and potential strategic actions such as the Milwaukee facility sale, while maintaining resilience in working capital.
Relative to peers in the Auto Parts/Consumer Cyclicals space, STRT’s current gross margin trails several larger peers, but its cash generation profile, capital discipline, and transformation momentum provide an attractive risk-adjusted profile for investors who value turnarounds and margin expansion stories in the automotive security niche. Key catalysts include: (1) the realization of the $5M annualized restructuring savings and associated operating leverage, (2) continued tariff mitigation success delivering stabilizing cash flows, and (3) execution of growth initiatives through higher-value content on existing programs and potential adjacencies post-transformation.
Investment stance: Neutral-to-Moderate risk with potential upside if the tariff headwinds continue to abate and the transformation delivers sustained margin expansion. Investors should monitor tariff recoveries and timing, the pace of restructuring benefits, program wins on high-value content, and the Milwaukee facility sale process as near-term drivers of earnings visibility and free cash flow. A selective, longer-term owning thesis could be warranted if STRT demonstrates sustained EBITDA margin expansion toward the mid-to-high single digits and a clearer path to earnings stability amid auto-cycle dynamics.
Key Investment Factors
Growth Potential
- Sustained margin uplift from pricing discipline, mix and cost optimization could drive higher EBITDA/FCF as restructuring benefits fully run through in 2026.
- Higher-value content on existing programs signals potential for further pricing leverage and program wins across North American OEMs.
- Potential Milwaukee facility sale and ongoing exploration of adjacent market opportunities could broaden growth vectors beyond core auto access control products and improve capital efficiency.
Profitability Risk
- Tariff exposure remains a material ongoing risk with annualized cost magnitude of $9–$12 million before mitigation; effectiveness of commercial recoveries and logistics reconfiguration is critical.
- Auto production cyclicality and volumes, especially amid ongoing tariff and trade policy shifts, could dampen top-line growth.
- Dependence on a relatively concentrated customer base and a Mexico-centric supply chain could expose STRT to geopolitical or supply-chain disruptions.
- Relative margin lag versus larger peers with more diversified product lines and scale may pressure valuation and competitive positioning.
Financial Position
- Strengthened balance sheet with a cash position of approximately $62.1 million and about $47 million available on revolver, implying ample liquidity to fund capex, working capital needs, and strategic actions.
- Modest leverage (debt/Equity around 0.06; debt ratio 0.0336) provides financial flexibility in an uncertain environment.
- Solid cash flow generation: YTD operating cash flow of $41.5 million and quarterly operating cash flow of $20.7 million.
- Moderate working capital cycles with working capital improvements (inventory down $6 million, extended AP terms) supporting free cash flow expansion potential as the transformation matures.
SWOT Analysis
Strengths
Strong quarterly cash generation and a robust liquidity position (cash ≈ $62.1M; revolver ≈ $47M available)
Material gross margin expansion (16.0% in Q3, up 560 bps YoY) driven by pricing actions, FX benefits, and cost optimization
Strategic transformation with $5M in annualized restructuring savings (Milwaukee + Mexico) and ramping benefits expected in Q1 2026
USMCA-aligned supply chain with majority of Mexican-sourced products compliant, mitigating tariff exposure
Increased high-value content on existing programs, supporting margin and cash flow improvements
Prudent capital allocation and IT/operational investments to support growth and efficiency
Weaknesses
Low gross margin relative to peers (STRT 16% vs peer margins in mid-20s to mid-30s for selected auto parts peers)
Tariff exposure remains a meaningful risk with $9–$12M annualized cost before mitigation; effectiveness of recoveries depends on customer negotiations and logistics changes
Modest revenue base with sensitivity to auto sector cycles and customer spend, limiting upside scale absent new programs or adjacencies
Partial ramp of restructuring savings means some margin uplift remains front-loaded to future quarters
Opportunities
Upside from full realization of restructuring savings in 2026 and beyond
Expansion of higher-value content across more programs and potential new platforms within current OEM relationships
Potential monetization from Milwaukee facility sale to bolster liquidity or fund growth initiatives
Sequential margin uplift from pricing power, FX tailwinds, and further optimization across Mexico/Milwaukee operations
Potential adjacencies in adjacent markets after deeper automotive focus is established
Threats
Macroeconomic and auto demand volatility affecting new/retained programs
Tariff policy changes or delays in recoveries could erode margin gains
Supply chain disruptions or shifts in supplier costs could offset cost reductions
Competitive intensity in auto parts with higher scale and broader product lines
Regulatory and political risks associated with cross-border manufacturing and trade
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