Eastern (NASDAQ:EML) reported lower first-quarter fiscal 2026 sales and earnings from continuing operations, as weaker demand for returnable transport packaging and an operating issue at its Big 3 Precision business weighed on margins. Management said improving order trends and sequential backlog growth point to a more constructive demand environment for the remainder of the year.
Chief Executive Officer Ryan Schroeder described the quarter as one with “positives and negatives,” noting that net sales improved sequentially from the fourth quarter even as year-over-year results declined. Net sales were $59.7 million, down about 6% from $63.3 million in the first quarter of 2025, according to Chief Financial Officer Nicholas Vlahos.
Schroeder said the sequential sales improvement of 4% reflected “improved order execution in an improving demand environment,” despite continued softness in returnable dunnage and a one-time destocking action by a customer of Eberhard.
Big 3 Issue Pressures Margin
Eastern’s first-quarter gross margin fell to 20.0% of net sales, or $11.9 million, compared with 22.4%, or $14.2 million, in the prior-year quarter. Vlahos said the decline reflected lower volumes on existing products, which spread manufacturing costs over a smaller revenue base, and below-plan operating performance at Big 3.
Schroeder said the Big 3 issue stemmed from orders quoted in the fourth quarter by the company’s racks team that were later found to be below the company’s margin thresholds. The orders were quoted during an extended period of soft demand as the business sought to fill plant capacity.
“I want to be clear about what happened, what we’ve done about it, and the timeframe over which the financial impact will work through our income statement,” Schroeder said.
He said Eastern has tightened quoting processes, adjusted delegation of authority and added a cross-functional review process to improve accountability. The company expects the financial impact to be contained to the first half of 2026 as the affected contracts run off. Schroeder said Eastern is honoring the customer commitments tied to those contracts, adding that backlog in the business continues to grow.
Adjusted EBITDA from continuing operations was $3.0 million, or 5.0% of net sales, compared with $4.6 million, or 7.3% of net sales, in the first quarter of 2025. Schroeder said that excluding the Big 3 impact, EBITDA across the rest of the portfolio was broadly in line with prior-quarter and prior-year periods.
Sales Decline Offset Partly by Truck Mirrors
Vlahos said the year-over-year sales decrease was primarily due to lower shipments tied to reduced order volume for returnable transport packaging products. The decline was partially offset by higher sales of truck mirror assemblies.
Operating profit was $1.3 million, or 2.2% of net sales, compared with $3.2 million, or 5.1% of net sales, in the prior-year period. Net income from continuing operations was $0.6 million, or $0.11 per diluted share, down from $1.9 million, or $0.31 per diluted share, a year earlier.
Selling and administrative expenses declined $0.3 million, or 2.8%, to $9.6 million, driven by lower compensation and related charges and lower commission costs, partially offset by higher legal and professional expenses. Interest expense fell modestly to $528,000 from $617,000 in the prior-year quarter.
Backlog Improves Sequentially
Eastern ended the quarter with backlog of $82.2 million as of April 4, 2026. That was down about 8% from $85.9 million a year earlier, primarily due to softer order activity in returnable transport packaging, but up from $81.1 million at fiscal year-end.
Schroeder said backlog increased sequentially for a second consecutive quarter, continuing the recovery from a trough reported in the third quarter of 2025. He said order rates strengthened across “virtually all” segments and that the demand recovery identified after the fourth quarter remains intact.
At Eberhard and Velvac, management said order momentum is building. Schroeder said Velvac is benefiting from early signs of recovery in heavy-duty truck build rates at major original equipment manufacturers, several of which have been adding capacity at their own plants. He also said customers are committing to orders for the second half of 2026, giving Eastern better visibility than it had at the same point last year.
Still, Schroeder said the company is monitoring the macroeconomic backdrop and managing with “appropriate caution” as the recovery solidifies.
Operational Investments Continue
Schroeder said Eastern is positioning each business to win more work, execute it profitably and capture operating leverage as demand improves. At Eberhard, the company is applying lean principles to shorten lead times and reduce inventory without material capital investment. He pointed to a new door actuation program for a customer’s next-generation side-by-side ATV that is ramping during the second and third quarters.
At Big 3, Eastern is making capacity investments, including automation and robotics intended to expand welding throughput without adding headcount and to enable lights-out and weekend production.
At Velvac, the company went live with a new ERP system on the first day of the second quarter. Schroeder said the system is expected to support more efficient order management, inventory visibility and financial close processes. He said the project remains ongoing, but Velvac is taking, making and shipping orders and successfully closed the month of April.
Cash Flow Rebounds as Debt Falls
Eastern generated $3.5 million in cash from operations during the quarter, reversing a $1.9 million use of cash in the prior-year first quarter. Capital expenditures were $0.9 million. Vlahos said inventory declined $3.3 million from year-end to $53.1 million, a reduction of about 5.9%, while accounts receivable rose modestly to $32.6 million.
Total assets were $217.0 million at quarter-end, essentially flat with $216.7 million at fiscal year-end. Working capital was $71.3 million, compared with $66.1 million in the prior-year period, and the current ratio was 3.5 times.
The company ended the quarter with $33.0 million of long-term debt. Vlahos said Eastern remained within all covenants under its Citizens Bank credit agreement and had $67.0 million of availability on its $100.0 million revolving facility.
Management said deleveraging remains a priority. During the quarter, Eastern continued paying its regular quarterly dividend and repurchased approximately 21,000 shares under its authorized buyback program.
Schroeder said the company’s strategy is unchanged, with an emphasis on deleveraging, organic growth and maintaining flexibility for acquisitions. “Our pipeline of potential acquisition targets is filling, and we are well-positioned to move decisively when the right opportunity meets our criteria,” he said.
About Eastern (NASDAQ:EML)
Eastern (NASDAQ:EML), based in West Haven, Connecticut, is a diversified industrial manufacturer specializing in secure hardware and metal finishing services. The company operates through two primary segments: Industrial Hardware Products and Security Products, complemented by a Metal Coatings division. Its Industrial Hardware Products segment produces cold-headed fasteners, forgings, hinges and precision components for heavy commercial vehicles, hydraulic cylinders and industrial machinery.
The Security Products segment designs and manufactures a wide range of lock and latch solutions, including padlocks, door hardware, cabinet locks and rental security towers for commercial and institutional applications.
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