Market Overview

The Eastern Company Reports Fiscal Year 2017 Earnings of $0.80 Per Diluted Share and Adjusted Earnings of $1.49 Per Diluted Share

Share:

The Company's Fiscal Year 2017 Net Sales Increased by 48% and Organic
Sales Grew by 13%

The Eastern Company (NASDAQ:EML) today announced the results of
operations for the fiscal year and fourth quarter of 2017. Sales for the
fiscal year 2017 were $204.2 million, compared to $137.6 million for
fiscal year 2016. Net income for the fiscal year 2017 was $5.0 million,
or $0.80 per diluted share, compared to $7.8 million, or $1.25 per
diluted share, for the fiscal year 2016. Sales for the fourth quarter of
2017 were $54.1 million compared to $34.1 million for the same period in
2016. Net income for the fourth quarter of 2017 was ($0.2) million, or
($0.03) per diluted share compared to $2.6 million, or $0.42 per diluted
share, for the comparable 2016 period.

Mr. Vlak, President and CEO, said that "our results for the 2017 fiscal
year and the fourth quarter of 2017 reflect solid growth of our
businesses and the addition of Velvac, as well as one-time charges
related to the new Tax Cuts and Jobs Act, which was enacted in December
2017. In the fourth quarter of 2017, we incurred an incremental one-time
tax charge of $2.5 million, including a $2.0 million charge on
undistributed earnings of foreign subsidiaries as well as a charge of
$0.5 million related to the impact of the tax reform on our deferred tax
asset. Total one-time charges impacted net income by $4.3 million, or
$0.69 per fully diluted share, in fiscal year 2017, and $2.5 million, or
$0.41 per fully diluted share, for the fourth quarter of 2017. Excluding
these one-time charges, we generated adjusted earnings of $1.49 per
fully diluted share in fiscal year 2017. Adjusted earnings per share is
a non-GAAP measure. A reconciliation of this Non-GAAP measure to
reported net income per share is included in this release.

Mr. Vlak continued that "net sales increased by 48% and 59% in fiscal
year 2017 and the fourth quarter of 2017, respectively, compared to the
corresponding periods in 2016. Sales growth reflects the acquisition of
Velvac, which closed on April 3, 2017, as well as organic growth of
approximately 14% and 13% in fiscal year 2017 and the fourth quarter of
2017, respectively, compared to the same periods in 2016. All three of
our business segments grew full year and fourth quarter 2017 sales
compared to the same periods in 2016. Our Industrial Hardware segment
grew by 89% and 107%, and excluding Velvac, grew by 11% and 6%, in
fiscal year 2017 and the fourth quarter of 2017, respectively, compared
to the same periods in 2016, as a result of strong sales growth to heavy
duty truck and service bodies customers. The exclusion of sales
attributable to Velvac is a non-GAAP measure. A reconciliation of this
non-GAAP measure to the reported Industry Hardware segment's sales is
included in this release. Our Security Product Segment sales grew by 7%
and 9% in fiscal year 2017 and the fourth quarter of 2017, respectively,
over the same periods in 2016, as a result of our investments in growth
at Illinois Lock and Argo Transdata. In our Metal Products segment, full
year 2017 and fourth quarter 2017 sales were up 45% respectively, over
the same periods in 2016. This segment continues to benefit from a
resurgence in sales to mining customers and diversification to other
industrial markets.

Net income declined to $5.0 million for fiscal year 2017 from $7.8
million for fiscal year 2016. Net income fell to ($0.2 million) for the
fourth quarter of 2017 from $2.7 million for the same period in 2016.
The decline in 2017 was due in large part to the $2.5 million one-time
impact of the Tax Cuts and Jobs Act, approximately $2.6 million of
one-time pre-tax charges, primarily related to the Velvac acquisition,
and sustained new product development investments of $5.6 million. We
have elected to defer payment of the eligible one-time tax charges over
eight years. One-time charges related to the Velvac acquisition included
a pre-tax charge of $1.2 million to cost of goods sold related to the
impact of purchasing accounting and $0.9 million in transaction related
expenses. In addition, we incurred $0.4 million in environmental
remediation expenses and $0.2 million in personnel related expenses.

Mr. Vlak continued that "net income was also affected by $5.6 million
and $1.5 million in new product development investments in fiscal year
2017 and the fourth quarter of 2017, respectively. We accelerated the
development of new technology vision products at Road-iQ, a division of
Velvac, and gPay at Greenwald Industries. Road-iQ is a connected vehicle
technology that provides both active and passive safety to drivers of
RVs, trucks and other specialty vehicles. We launched Road-iQ at the
November RVIA show and the January RV Dealer show with enthusiastic
reception. gPay is a new payment system that enables consumers to use
their mobile phone to pay for their laundry. We expect to launch gPay
later in the first quarter of 2018.

Mr. Vlak concluded that "we anticipate increased earnings and cash flow
as a result of the reduction in our income taxes starting in 2018. We
intend to deploy incremental capital to fund the growth of our best
businesses, make targeted acquisitions to strengthen our portfolio, and
continue to build up our balance sheet by paying down debt and funding
our pension and retirement plan obligations. We believe that the
addition of Velvac strengthens our portfolio of businesses, and we
continue to look for acquisition opportunities that have strong
economics and help us build scale in attractive end-markets. In
addition, we believe our businesses are well-positioned to benefit from
strong underlying growth in several core markets in 2018."

The Eastern Company will host a conference call to discuss its results
for the 2017 fiscal year and the fourth quarter of 2017 and other
matters at 9:00am on Friday, March 16, 2018. Participants can access the
conference call by phone at (888) 669-0687 and via the web at https://www.webcaster4.com/Webcast/Page/1757/24581.

The Eastern Company is 159-year old manufacturer of industrial hardware,
security products and metal castings. It operates 16 locations in the
U.S., Canada, Mexico, Taiwan and China.

Cautionary Language Concerning Forward-Looking Statements

Statements in this document about The Eastern Company's future
expectations, beliefs, goals, plans or prospects constitute
forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and
the rules, regulations and releases of the Securities and Exchange
Commission. Any statements that are not statements of historical fact,
including statements containing the words "believes," "intends,"
"continues," "reflects," "plans," "anticipates," "expects," and similar
expressions, should also be considered to be forward-looking statements.
Readers should not place undue reliance on these forward-looking
statements, which are based upon the current beliefs and expectations of
the management of The Eastern Company. These forward-looking statements
are subject to risks and uncertainties, and actual results might differ
materially from those discussed in, or implied by, the forward-looking
statements. Among the risks and uncertainties that could cause actual
results or events to differ materially from those indicated by such
forward-looking statements include, but are not limited to changing
customer preferences, lack of success of new products, loss of customers
and increased prices for raw materials. There are important, additional
factors that could cause actual results or events to differ materially
from those indicated by such forward-looking statements, including those
set forth in The Eastern Company's reports and filings with the
Securities and Exchange Commission. The Eastern Company undertakes no
obligation to update, alter, or otherwise revise any forward-looking
statements, whether written or oral, that may be made from time to time,
whether as a result of new information, future events, or otherwise.

Statement of Consolidated Income (unaudited)
               
THE EASTERN COMPANY (NASDAQ - EML)
 
 
 
Three Months Ended Twelve Months Ended
 
13 wks 13 wks 52 wks 52 wks

Dec 30, 2017

Dec 31, 2016

Dec 30, 2017

Dec 31, 2016

Net Sales $ 54,143,638 $ 34,144,942 $204,239,613 $137,608,258
 
 
Net Income After Tax (168,769) 2,649,349 5,045,255 7,785,323
 
 
Net Income Per Share:
Basic $ (0.03) $ 0.42 $ 0.81 $ 1.25
Diluted $ (0.03) $ 0.42 $ 0.80 $ 1.25
 
Weighted average

shares outstanding:

Basic 6,261,737 6,254,605 6,259,139 6,251,535
Diluted 6,297,371 6,254,605 6,294,773 6,251,535
The Eastern Company              
Reconciliation of expenses from GAAP to Non-GAAP financial measurer
For the Three and Twelve Months ended December 30, 2017
 
Three Months Ended Twelve Months Ended
December 30, 2017 December 30, 2017
 
Net Income as reported per generally accepted accounting principles
(GAAP)
$ (168,769) $ 5,045,255
 
 
Earnings Per Share as reported under generally accepted accounting
principles (GAAP):

Basic

$(0.03) $0.81
Diluted $(0.03) $0.80
 
Adjustments for one-time expenses        

Charge to cost of goods sold relating to purchase accounting for
the Velvac acquisition.

$ 0 $ (1,187,668)

 

 

Transaction expenses related to the Velvac acquisition

$ 0 $ (869,000)
 
Environmental remediation expense related to the Metal Products
Segment
$ 0 $ (380,000)
 
Personnel expenses related to the Security Products Segment $ 0 $ (205,000)
$ 0 $ (2,641,668)
 
Income Taxes Related to Expense Adjustment $ 0 $ (887,600)
 
Income Taxes Related to Tax Cuts and Jobs Act $ 2,565,375 $ 2,565,372
       
Adjustment to Net Income (related to expenses and Tax Cuts and Jobs
Act); (Non-GAAP)
$ 2,396,606 $ 9,364,695
 
Adjustment to Earnings per share (related to expenses and Tax Cuts
and Jobs Act); (Non-GAAP)
Basic $0.38 $1.50
Diluted $0.38 $1.49
 
 
Reconciliation of Industrial Hardware Segment net sales from GAAP to
Non-GAAP financial measurer
For the Three and Twelve Months ended December 30, 2017 and December
31, 2016
Three Months Ended Three Months Ended Twelve Months Ended Twelve Months Ended
December 30, 2017 December 31, 2016 December 30, 2017 December 30, 2016
Net sales Industrial Hardware Segment (GAAP) $ 31,772,577 $ 15,369,767 $ 115,273,233 $ 61,058,871
Percent change (GAAP) 107% 89%
Net sales Velvac $ 15,487,191 $ 0 $ 47,313,216 $ 0
               
Net sales Industrial Hardware Segment (excluding Velvac); (Non-GAAP) $ 16,285,386 $ 15,369,767 $ 67,960,017 $ 61,058,871
Percent change (excluding Velvac); (Non-GAAP) 6% 11%
 
Use of Non-GAAP Financial Measures
 
 
To supplement our consolidated financial statements presented in
accordance with generally accepted accounting principles in the
United States ("GAAP"), we disclose certain non-GAAP financial
measures including adjusted net income and adjusted earnings per
diluted share. Adjusted net income and adjusted earnings per diluted
share exclude transaction-related expenses, a charge to costs of
good sold as a result of the impact of purchase accounting and
environmental remediation costs, and Industrial Hardware growth
excludes results of the Velvac business, which was acquired on April
3, 2017. In addition, we show the impact of the one-time change
related to the new Tax Cuts and Jobs Act. These measures are not in
accordance with GAAP.
Management uses such measures to evaluate performance period over
period, to analyze the underlying trends in our business including
our business segments, to assess our performance relative to our
competitors, and to establish operational goals and forecasts that
are used in allocating resources. These financial measures should
not be considered in isolation from, or as a replacement for, GAAP
financial measures.
We believe that presenting non-GAAP financial measures in addition
to GAAP financial measures provides investors greater transparency
to the information used by our management for its financial and
operational decision-making. We further believe that providing this
information better enables our investors to understand our operating
performance and to evaluate the methodology used by management to
evaluate and measure such performance.

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