Q - EASTERN CO

Previous wording

The following discussion is intended to highlight significant changes in the financial position and results of operations of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the three months ended March 29, 2025. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December 28, 2024 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2024, which was filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2025 (the “2024 Form 10-K”).

Current wording

The following discussion is intended to highlight significant changes in the financial position and results of operations of The Eastern Company (together with its consolidated subsidiaries, the “Company,” “we,” “us” or “our”) for the three and six months ended June 28, 2025. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December 28, 2024 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2024, which was filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2025 (the “2024 Form 10-K”).

Previous wording

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References in this Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2025 (this “Form 10-Q”) to 2024, the 2024 fiscal year or fiscal 2024 mean the 52-week period ended on December 28, 2024, and references to 2025, the 2025 fiscal year or fiscal 2025 mean the 53-week period ending on January 3, 2026. In a 52-week fiscal year, each quarter has 13 weeks. References to the first quarter of 2024, the first fiscal quarter of 2024, the first three months of 2024 or the three months ended March 30, 2024 mean the 13-week period from December 31, 2023 to March 30, 2024. References to the first quarter of 2025, the first fiscal quarter of 2025, the first three months of 2025 or the three months ended March 29, 2025 mean the 13-week period from December 29, 2024 to March 29, 2025.

Current wording

The Company’s fiscal year is a 52-53-week fiscal year ending on the Saturday nearest to December 31. References in this Quarterly Report on Form 10-Q for the quarterly period ended June 28, 2025 (this “Form 10-Q”) to 2024, the 2024 fiscal year or fiscal 2024 mean the 52-week period ended on December 28, 2024, and references to 2025, the 2025 fiscal year or fiscal 2025 mean the 53-week period ending on January 3, 2026. In a 52-week fiscal year, each quarter has 13 weeks. References to the second quarter of 2024, the second fiscal quarter of 2024 or the three months ended June 29, 2024, mean the 13-week period from March 31, 2024 to June 29, 2024. References to the second quarter of 2025, the second fiscal quarter of 2025 or the three months ended June 28, 2025 mean the 13-week period from March 30, 2025 to June 28, 2025. References to the first six months of 2024 or the six months ended June 29, 2024 mean the period from December 31, 2023 to June 29, 2024. References to the first six months of 2025 or the six months ended June 28, 2025 mean the period from December 29, 2024 to June 28, 2025.

Previous wording

The U.S. tariffs implemented in March 2025 did not materially impact our results for the first quarter 2025. While the long-term effects remain uncertain, we continue to closely monitor the evolving tariff policy environment which presents a mix of impacts, with the potential for higher pricing, as well as higher product and operating costs. See Part I, Item 1A,Risk Factors in the 2024 Form 10-K for a discussion regarding tariff-related risks.

Current wording

For the six months ended June 28, 2025, we have recovered most of the U.S. tariffs implemented in March 2025 through price increases. However, the tariff environment has been dynamic over the last several months, with changes occurring on an ongoing basis, and it is likely that additional developments will occur over the next several months, particularly as the U.S. negotiates with trade partners. While the long-term effects remain uncertain, we continue to closely monitor the evolving tariff environment which presents a mix of impacts, with the potential for higher pricing, as well as higher product and operating costs. See Part I, Item 1A,Risk Factors in the 2024 Form 10-K for a discussion regarding tariff-related risks.

Previous wording

In the third quarter of 2024, we determined that the Big 3 Mold business met the criteria to be held for sale and that the assets held for sale qualify for discontinued operations. As such, the financial results of the Big 3 Mold business are reflected in our unaudited condensed consolidated statements of operations as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both periods presented.

Current wording

In the third quarter of 2024, we determined that the Big 3 Mold business met the criteria to be held for sale and that the assets held for sale qualify for discontinued operations. As such, the financial results of the Big 3 Mold business are reflected in our unaudited condensed consolidated statements of operations as discontinued operations for all periods presented. Additionally, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both periods presented. On April 30, 2025, the Company sold the equipment, workforce and customer list of the ISBM division of Big 3 Mold.

Previous wording

Net sales in the first quarter of 2025 decreased 2% to $63.3 million from $64.6 million in the corresponding period in 2024. Sales decreased in the first quarter of 2025 due to decreased sales of truck mirror assemblies and truck accessories of $4.2 million and $2.6 million, respectively, offset by increased sales of returnable transport packaging products of $3.1 million. Our backlog as of March 29, 2025 decreased 9% to $85.9 million from $94.0 million as of March 30, 2024, driven by decreased orders for returnable transport packaging products of $6.6 million various truck mirror assemblies of $2.7 million offset by increase a latch and handle assemblies of $1.3 million.

Current wording

Net sales in the second quarter of 2025 decreased 3% to $70.2 million from $72.6 million in the corresponding period in 2024. The decrease in sales was due to lower sales of truck mirror assemblies of $3.5 million, offset by increased sales of latch and handle assemblies of $1.3 million. Net sales in the first six months of 2025 decreased 3% to $136.1 million from $139.8 million in the corresponding period in 2024. Sales decreased in the first six months of 2025 due to decreased sales of truck mirror assemblies of $7.0 million and latch and handle assemblies of $0.3 million, offset by increased sales of returnable transport packaging $3.6 million.

Previous wording

Net sales of existing products decreased 6% in the first quarter of 2025 compared to the corresponding period in 2024. Price increases and new products increased net sales by 1% in the first quarter of 2025, compared to the corresponding periods in 2024. New products sales included various truck mirror assemblies and handles.

Current wording

Net sales of existing products decreased 11% in the second quarter of 2025 and 8% in the first six months of 2025 compared to the corresponding periods in 2024. New products increased net sales by 8% in the second quarter of 2025 and 6% in the first six months of 2025 compared to the corresponding periods in 2024. New product sales included various truck mirror assemblies and handles.

Previous wording

Cost of products sold decreased less than $0.1 million in the first quarter of 2025 compared to the corresponding period in 2024. Additionally, the Company paid tariff costs on China-sourced products of approximately $0.6 million in the first quarter of 2025, compared to $0.7 million in the first quarter of 2024. Most tariffs on China-sourced products have been recovered through price increases.

Current wording

Cost of products sold decreased $0.3 million in the second quarter of 2025 and less than $0.5 million in the first six months of 2025 compared to the corresponding period in 2024. These decreases were due to lower sales volume. Additionally, the Company paid tariff costs on China-sourced products of approximately $2.4 million in the second quarter of 2025 and $3.0 million in the first six months of 2025, compared to $0.6 million in the second quarter of 2024 and $1.2 million in the first six months of 2024. Most tariffs on China-sourced products have been recovered through price increases.

Previous wording

Product development expensesdecreased $0.3 million in the first quarter of 2025 compared to the corresponding periods in 2024. As a percentage of net sales, product development costs were 2.0% in each period as we continue to invest in new products at our businesses.

Current wording

Product development expensesdecreased $0.3 million in the second quarter of 2025 and decreased $0.5 million in the first six months of 2025 compared to the corresponding periods in 2024. As a percentage of net sales, product development costs were 1.6% and 1.9% in the first six months of 2025 and 2024, respectively, as we continue to invest in new products at our businesses.

Previous wording

Interest expense decreased $0.1 million in the first quarter of 2025 due to lower principal balances, offset by higher interest rates.

Current wording

Interest expense decreased $0.1 million in the second quarter of 2025 and $0.2 million in the first six months of 2025 compared to the corresponding period in 2024 due to lower principal balances, offset by higher interest rates.

Previous wording

Net incomefor the first quarter of fiscal 2025 was $1.9 million, or $0.31 per diluted share compared to net income of $2.1 million, or $0.34 per diluted share, for the comparable period in 2024.

Current wording

Net incomefor the second quarter of fiscal 2025 was $2.0 million, or $0.33 per diluted share, compared to net income of $4.1 million, or $0.65 per diluted share, for the comparable period in 2024. In the first six months of 2025, net income was $4.2 million, or $0.69 per diluted share, compared to $6.4 million, or $1.02 per diluted share, for the comparable period in 2024.

Previous wording

The following table shows the change in sales and operating profit for the first quarter of 2025 compared to the first quarter of 2025 (dollars in thousands):

Current wording

The following table shows the change in sales and operating profit for the second quarter and first six months of 2025 compared to the second quarter and first six months of 2024 (dollars in thousands):

Previous wording

The Company used $1.9 million of cash in operations during the first three months of 2025 compared to generating $2.8 million during the first three months of 2024. The usage in cash flow from operations in the first three months of 2025 compared to the cash generation from operations in the corresponding period in 2024 was primarily due to timing of annual vendor deposit and 2024 bonus payments offset by improved customer collection performance and lower sales.

Current wording

The Company generated $1.9 million of cash from operations during the first six months of fiscal 2025 compared to generating $11.2 million during the first six months of fiscal 2024. Cash flow from operations in the first six months of 2025 was lower when compared to the corresponding period in 2024 primarily due to lower collections of receivables and lower liquidations of inventory, partially offset by increases in accounts payable.

Previous wording

Additions to property, plant, and equipment were $0.8 million and $1.7 million for the first three months of 2025 and 2024, respectively. As of March 29, 2025, there was approximately $0.6 million of outstanding commitments for capital expenditures.

Current wording

Additions to property, plant, and equipment were $1.6 million and $2.8 million for the first six months of 2025 and 2024, respectively. As of June 28, 2025, there was approximately $1.2 million of outstanding commitments for capital expenditures.

Previous wording

The following table shows key financial ratios as of the dates specified:

Current wording

The following table shows key financial ratios at dates specified:

Previous wording

Inventories of $55.4 million as of March 29, 2025 increased by $0.2 million, or less than 0.1%, when compared to $55.2 million at the end of fiscal year 2024 and increased $0.3 million, or less than 0.1 % when compared to $55.1 million at the end of the first quarter of fiscal 2024. Accounts receivable, less allowances, were $33.5 million as of March 29, 2025, as compared to $35.5 million at 2024 fiscal year end and $40.5 million at the end of the first quarter of fiscal 2024.

Current wording

Inventories of $54.1 million as of June 28, 2025 declined by $1.1 million, or 2.0%, when compared to $55.2 million at the end of fiscal year 2024 and declined $2.8 million, or 4.9%, when compared to $56.9 million at the end of the second quarter of fiscal 2024. Accounts receivable, less allowances, were $40.2 million as of June 28, 2025, as compared to $35.5 million at 2024 fiscal year end and $42.3 million at the end of the second quarter of fiscal 2024.

Previous wording

On June 16, 2023, the Company entered into a credit agreement with the lending institutions named therein (the "Lenders"), TD Bank NA, the swing line lender and as the administrative agent, TD Securities (USA) LLC, as sole arranger and sole bookrunner, and Bank of America, N.A. and Wells Fargo Bank, National Association, as co-syndication (the “Credit Agreement”), and incurred indebtedness under the Credit Agreement in the aggregate principal amount of $60 million in the form of a term loan, the proceeds of which were used to repay the Company’s remaining outstanding term loan and to terminate its previous credit facility with Santander. The Credit Agreement also included a $30 million revolving commitment portion, which was increased to $50 million through an amendment to the Credit Agreement in April 2025. See Note HDebt, for additional information regarding the terms of the Credit Agreement, including repayment terms, interest rates, and applicable loan covenants. Under the terms of the Credit Agreement, the Company is subject to restrictive covenants that limit our ability to, among other things, incur additional indebtedness, pay dividends, or make other distributions, and consolidate, merge, sell or otherwise dispose of assets, as well as financial covenants that require us to maintain a fixed charge coverage ratio and a maximum senior net leverage ratio. These covenants may limit how we conduct our business, and in the event of certain defaults, our repayment obligations may be accelerated.

Current wording

On June 16, 2023, the Company entered into a credit agreement with the lending institutions named therein (the "Lenders"), TD Bank N.A., the swing line lender and as the administrative agent, TD Securities (USA) LLC, as sole arranger and sole bookrunner, and Bank of America, N.A. and Wells Fargo Bank, National Association, as co-syndication agents (the “Credit Agreement”), and incurred indebtedness under the Credit Agreement in the aggregate principal amount of $60 million in the form of a term loan. The Credit Agreement also included a $30 million revolving commitment portion, which was increased to $50 million through an amendment to the Credit Agreement in April 2025. See Note HDebt, for additional information regarding the terms of the Credit Agreement, including repayment terms, interest rates, and applicable loan covenants. Under the terms of the Credit Agreement, the Company is subject to restrictive covenants that limit our ability to, among other things, incur additional indebtedness, pay dividends, or make other distributions, and consolidate, merge, sell or otherwise dispose of assets, as well as financial covenants that require us to maintain a fixed charge coverage ratio and a maximum senior net leverage ratio. These covenants may limit how we conduct our business, and in the event of certain defaults, our repayment obligations may be accelerated.

Previous wording

We were in compliance with all of our covenants as March 29, 2025 and had $1.3 million borrowings under the revolving commitment portion of the credit facility as of such date. The Company has $27.0 million available on its revolving line of credit as of such date.

Current wording

We were in compliance with all of our covenants as June 28, 2025 and had no borrowings under the revolving commitment portion of the credit facility as of such date. The Company has $50 million available on its revolving line of credit as of such date.

Previous wording

As of the end of the first quarter of 2025, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Current wording

As of the end of the second quarter of 2025, the Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Previous wording

Adjusted Earnings Per Share from Continuing Operations is defined as earnings per share from continuing operations excluding, when incurred, certain per share gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs. We believe that Adjusted Earnings Per Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to assess operating performance on a consistent basis from period to period.

Current wording

Adjusted Earnings Per Share from Continuing Operations is defined as earnings per share from continuing operations excluding, when incurred, certain per share gains or losses that we do not believe reflect our ongoing operations, including, for example, the impacts of impairment losses, gains/losses on the sale of subsidiaries, property and facilities, transaction expenses primarily relating to acquisitions and divestitures, factory start-up costs, factory relocation expenses, executive severance, and restructuring costs. We believe that Adjusted Earnings Per Share from Continuing Operations provides important comparability of underlying operational results, allowing investors and management to access operating performance on a consistent basis from period to period.