The Eastern Company (EML) Earnings Call Transcript & Summary

Good morning. Welcome to The Eastern Company's 2022 Annual Meeting of Shareholders. [Operator Instructions] Please note, this meeting is being recorded. I will now turn the meeting over to your host, James Mitarotonda, Chairman of The Eastern Company. Mr. Mitarotonda, please go ahead.

Thank you. Thank you very much. Good morning, and welcome to the 164th Annual Meeting of Shareholders of The Eastern Company. I'm James Mitarotonda. I'm the Chairman of the Board of The Eastern Company, and I will act as the Chairman of today's meeting. We're delighted that you have joined us for this webcast and look forward to hearing from you this morning. At this time, I am calling this meeting to order. I would like to introduce Gus Vlak, the President and Chief Executive Officer of The Eastern Company. Mr. Vlak is also on the Board of Directors. The Eastern Company's Board members are in attendance remotely. They are Mr. Fredrick DiSanto, Mr. John Everets, Mr. Charles Henry and Mrs. Peggy Scott. Also in attendance by phone are Kevin Donovan, Matthew Soroka and Yana Reiser from Fiondella, Milone & LaSaracina, the company's independent registered accounting firm. We will be filing the final reports of the voting on a Form 8-K with the SEC in accordance with SEC rules. Mr. John Sullivan, who's the Chief Financial Officer of The Eastern Company, is in attendance as well. I would like to introduce the Corporate Secretary, Mr. Nicholas Vlahos. I have appointed Mr. Vlahos to serve as our inspector of elections. I declare the polls are now open for each matter to be voted on today, April 26, 2022. If you have not yet voted your shares by proxy or wish to change your vote, please go to the Ask a Question section, which is located on the lower left portion of the webcast screen, and write your name, your address, your control ID found on the proxy materials sent to you and indicate how you would like your shares voted. [Voting]

Again, you can now vote your shares by proxy or change your vote by going to the Ask a Question section, which is located on the lower left portion of the webcast screen. There, you can write your name, your address and your control ID found on the proxy materials sent to you. You can also indicate how you would like your shares voted. [Voting]

Since everyone appears to have cast their ballots, I am declaring the polls closed. Mr. Vlahos, would you please provide a quorum report for this meeting?

Mr. Chairman, total number of shares entitled to vote were 6,242,392 shares. The total number of shares represented are 5,684,846 or 90%. Accordingly, under the bylaws of the corporation, a quorum is present.

Mr. Vlahos, as secretary of this annual meeting, please read the call to meeting.

The Annual Meeting of the Shareholders of The Eastern Company is being virtually held on April 26, 2022, at 11 a.m. Eastern Time. In light of the public health concerns regarding the coronavirus, the annual meeting is being held in a virtual meeting format only. Shareholders are not able to attend the annual meeting in person but have the same opportunities to participate in this virtual meeting format as they would at an in-person meeting. The Annual Meeting of the Shareholders of the company is being held for the following purposes: to elect 6 directors; to cast a nonbinding advisory note to approve the compensation of the named executive officers; to ratify the Audit Committee's recommendation and the Board of Directors' appointment of Fiondella, Milone & LaSaracina LLP as the independent registered public accounting firm to audit the consolidated financial statements of the company and its subsidiaries for fiscal year 2022. Shareholders of record and beneficial shareholders of those close -- as of the close of business on March 1, 2022, may ask questions in both their shares during the annual meeting. If you were a shareholder of record as of the close of business on March 1, 2022, to vote your shares during the annual meeting or submit questions during the meeting, you must log into the meeting using the control number found on your proxy card, voting instruction form or notice you previously received. Shareholders of record may vote during the annual meeting by following the instructions available on the meeting website during the meeting. If you do not have a control number, you may vote the annual meeting as a guest, but you will not have the option to vote your shares. Your vote is very important. All shareholders are cordially invited to attend the virtual Annual Meeting of the Shareholders or any adjournment thereof, and management looks forward to having you here by orders of the Board of Directors.

Thank you. We will now proceed to our stated business of the meeting. These items have been described in the proxy materials previously made available to all shareholders of record for this meeting. Does anyone have any questions or comments? The first item on which we are voting today is the election of 6 directors to serve for a 1-year term, set to expire at the 2023 Annual Meeting of Shareholders. The Board's nominees are Mr. Fredrick DiSanto; Mr. John Everets; Mr. Charles Henry; myself, Mr. James Mitarotonda; Mrs. Peggy Scott; and Mr. August Vlak.

89% or more of the votes cast by proxy were voted in favor of all nominee directors, Mr. DiSanto, Everets, Henry, Mitarotonda, Vlak and Ms. Scott, for 1-year term expiring in 2023.

I declare the nominees elected as directors for the term specified or until such time as their successors are elected and qualified. The second item on which we are voting today is to approve the compensation of the named executive officers.

98% of the votes cast by proxy were voted in favor of the compensation of the named executive officers.

Thank you. I declare the resolution to be adopted for the nonbinding vote for compensation of our named executive officers. The third item on which we are voting today is the ratification of the appointment of the independent registered public accounting firm, Fiondella, Milone & LaSaracina LLP.

98% of the votes cast by proxy were voted in favor of the appointment of Fiondella, Milone & LaSaracina LLP as the independent registered public accounting firm to audit the consolidated financial statements of the company for fiscal year 2022.

I declare the resolution adopted. I will now hand over the floor to Mr. Gus Vlak, who will review the results of 2021.

Thank you, Jim, and thank you to those on the phone and on the web for joining us for our Annual Shareholder Meeting. It's my privilege today to talk to you about your company on behalf of the roughly 1,200 employees at Eastern. My comments today will focus on 2021, a year that marked some significant changes for us. Before I start, I'd just like to make you aware that this presentation includes some forward-looking statements. Please read this notice on forward-looking statements, which is also included in our latest quarterly press release. When we closed the door on 2020 and we started 2021, we looked for our customers, suppliers and a general environment to return to some comparative level of normal. Demand had picked up. And while we saw some increase in raw material prices in Q4, they were broadly consistent with our past experience. We certainly had a very robust start to the year when the environment began to shift. As a result, we focused not only on delivering our plan, but also navigating the many disruptions in the markets for raw materials, labor and transportation. I'm proud of what we accomplished last year. In the second quarter, we announced our intention to discontinue 3 of our businesses. And by November of last year, we divested Greenwald Industries, which Eastern had owned for more than 20 years, and Frazer & Jones, which we had acquired in 1945. At the same time, we completed the combination of our Eberhard and Illinois Lock businesses into a single, more competitive, more innovative and more streamlined operation. Our sales team also executed superbly, and we increased our revenue from continuing operations. Remember, that includes Eberhard, Big 3 Precision and Velvac. We increased our sales by 25%. Furthermore, we [ faced off ] 3 major trends with multiple rounds of price increases and resourcing throughout the year. These 3 trends included rapidly escalating raw material costs, supply chain delays and material shortages, and further increases in shipping and transportation costs. And while there's always a lag in our price increases, we've been vigilant in sticking with them. Furthermore, we used the proceeds from our divestitures last year to reduce our total debt burden by roughly $17 million as part of our commitment to continue to strengthen our balance sheet. And finally, and I didn't think I would stand here and still talk about COVID, but in 2021, we maintained our vigilant focus on employee health policies, cleaning disciplines, et cetera, to provide a healthy work environment for our employees. Financially, 2021 represented a robust bounce back from 2020, and we're proud of the way our business has recovered. With sales up 25% and earnings per share of 47%, I believe that puts us on a solid trajectory. These results include only the results from our continuing operations, and each of our core businesses executed well throughout the year to deliver these results. So I'd like to tell you a little bit more about these businesses. As you may recall, we are now focused on our 3 core operations, including Big 3 Precision, which is a leading provider of custom engineered, returnable transport packaging. We bought Big 3 Precision in August of 2019. Eberhard, which is a global manufacturer and designer of access hardware systems. We acquired Eberhard in 1936. And Velvac, a leading innovator in vision systems and components to commercial vehicles, which we acquired in 2017. Each of these businesses represents a scalable platform for growth for us. Let me talk about each in turn. Big 3 Precision. This business is designed for manufacturers' returnable transport packaging. Now that's a mouthful. The business works with OEMs and our suppliers to design custom packaging that they use to move components, sometimes as large as [ a tire size ] or [indiscernible] cars, from a supplier stamping plant to an OEM assembly plant. In this illustration on this page, the custom packaging is used to move engines from a Tier 1 supplier facility to an OEM facility. And the packaging, when it's empty, is then shipped back to the supplier facility, and that's what makes it returnable. We believe that demand for our products is set to increase, and we did a lot in 2021 to position the business to take advantage of these trends. Notably, we appointed a new leader. We hired a new sales leader for the business. And we started our focus on high-growth market opportunities such as electric vehicles. We also took advantage of our relationships with heavy-duty truck manufacturers to introduce Big 3 Precision to their operations. And all of these efforts are starting to pay off. Finally, we worked a lot last year on pricing at Big 3 Precision. The business uses a lot of hot rolled steel, and those costs quadrupled throughout the year. We needed to raise prices, and we put new disciplines in place to make sure that we're able to recover the price increases. At Eberhard, we completed the consolidation of our Eberhard and Illinois Lock businesses, which I previously mentioned. We closed 2 facilities and shifted some of the operations to Mexico, which is part of our long-term vision to restore manufacturing to North America. We're currently developing plans to significantly expand Eberhard's presence in Mexico, taking advantage of our existing Velvac location in Reynosa. On the commercial side, we developed and then launched a complete range of electromechanical products. This product breadth allows us to serve a range of customer applications. We launched a product at the SEMA Show in November last year, and the response has been excellent. We're incredibly excited about the opportunities for these products at Eberhard. And of course, 2021 would not have been complete with successive rounds of price increases to keep track with raw material and transportation cost increases for Eberhard. Third, Velvac. Velvac had a banner launch year, introducing 6 new truck mirror programs. That's a record. And I have to applaud the team at Velvac for doing this while achieving 0 ppm for all of our leading customers. We have long believed that there's exciting opportunities for us in the aftermarket. And in 2021, Velvac also launched a proprietary line of air brake hoses, targeting the heavy-duty OEM and trailer aftermarket. We previously resold [ a porter ] product. But with this launch, we're now doing our own assembly, and we believe we can be a meaningful player in this market. You have long heard me talk about the tenets of our strategy deliver long-term value to our shareholders. Our strategy centers on innovation-driven growth such as the electromechanical products at Eberhard and our proprietary blind spot detection product, which will soon be available on [ Thor ] diesel motorhomes. We're focused on strategic bolt-ons such as the 2020 acquisition of Hallink and disciplined capital allocation, which is reflected in our divestitures. We believe that our businesses are well positioned to capitalize on some significant trends, including electrification, digitization and automation. Each of these allows us to develop products that add more value to our customers. Finally, I want to acknowledge the more than 1,200 people across the globe at Eastern, represented in this picture by our team in Reynosa, Mexico. Their resilience throughout the last few years, creativity in the face of numerous challenges and commitment to doing what is necessary for our customers is what makes this place work. And I'm deeply grateful to them. We are open for questions. There being no questions, I will hand the floor back to Mr. Mitarotonda.

Let me just reiterate, thank you so much, Gus, if there are any questions by shareholders regarding general company matters, please type them in the Ask a Question section, which is located on the lower left portion of the webcast screen.

Mr. Mitarotonda, at this time, there are no questions.

Okay. Thank you, Nick. All items of the business have now been completed. There being no further business, I will entertain a motion to adjourn this annual meeting.

Mr. Chairman, I move that this annual meeting be adjourned.

Is there a second?

Mr. Chairman, I second the motion.

I would like to express my appreciation to all the shareholders who attended this virtual annual meeting as well as those who submitted their proxies but were unable to attend. The Annual Meeting of Shareholders of The Eastern Company is now adjourned. Thank you. Thank you very much.

This concludes The Eastern Company's 2022 Annual Meeting of Shareholders. You may disconnect at this time. Thank you for your participation.