Strattec Security Corporation(STRT 0.69%) reported fourth-quarter and full-year 2025 results on August 14, 2025, delivering 6% revenue growth year over year for the quarter, 5% growth for the fiscal year, and record annual operating cash flow of $71.7 million. Gross margin expanded by 370 basis points to 16.7%, driven by restructuring and pricing actions. However, management guided for normalized cash flow and flat or lower sales in fiscal 2026 (ending June 30, 2026) amid projected declines in North American automotive production. Key insights below highlight ongoing margin improvement, portfolio refocus, and capital allocation positioning.

Margins and EBITDA expand as STRT transformation accelerates

Gross profit reached $25.4 million, supported by $3 million in foreign exchange gains, $1.7 million in tooling gains, $1.3 million of restructuring savings, and strategic pricing actions. EBITDA margin for the full year rose to 7.7%, a 220 basis point improvement, despite $1.6 million in net tariff headwinds and elevated Mexican labor costs. Management targets steady progress toward low teen EBITDA margins over time.

"Fourth quarter gross profit increased to $25.4 million and gross margin expanded by 370 basis points to 16.7%. Gross profit improvement was the result of a $3 million benefit from a stronger U.S. Dollar, strategic pricing actions, $1.7 million in tooling gains, higher production volumes, and $1.3 million of restructuring savings. These gains more than offset $1.6 million of net tariff expenses stemming from recent changes in U.S. Trade policy and higher labor costs in Mexico, albeit on a lower headcount. Based on the currently enacted tariff rates, we estimate that the annual cost increase is between $5 million to $7 million before any mitigation efforts. However, we have taken steps to change our logistic routes, review our supply chain, and implement price increases or tariff recoveries from customers. Our tariff mitigation efforts have continued after our fiscal year end, and as of today, we have line of sight to recover the majority of the cost. But the recovery of tariff costs will lag the associated expenses."
-- Matthew Pauley, Vice President and CFO

Management's proactive cost actions and pricing power are enabling margin expansion despite external inflationary and tariff pressures, supporting the investment case for sustainable profitability improvements even in challenging industry cycles.

STRT pivots portfolio to digital and power access products

The company streamlined operations with a 15% headcount reduction and redirected engineering investment away from legacy switch products amid declining vehicle content and intensifying competition. New leadership hires in operations and supply chain underpin a sharper focus on digital key and power access lines, positioning the business for secular growth opportunities.

"We had some products, really our switch product line, and when we look at that market, there's less and less switches in the vehicle today. It's already a crowded market. We have other areas of our business like our power access products and our digital key fob that we feel we have a lot of opportunity. So we're still supporting our customers that we have in production, but we're really refocusing our engineering efforts around those products that we feel have more growth and provide more value to our customers."
-- Jennifer Slater, President and CEO

This portfolio refocus supports long-term top-line growth, higher margins, and a stronger competitive position aligned with evolving original equipment manufacturer (OEM) demand and vehicle technology trends.

Record cash build bolsters capital flexibility; return to normalized levels expected

Fiscal 2025 delivered $71.7 million in operating cash flow—a company record—driven by improved earnings and significant one-time items, including $5 million in value-added tax (VAT) recoveries from Mexico, disciplined working capital reduction from roughly 22% of sales at the beginning of the year to a little over 16% at the end, and inventory drawdowns. Year-end cash stood at $84.6 million, with $52 million in untapped credit capacity.

"We delivered $71 million of cash from operations. I'd say about half of that is kind of the normal, and the other half was kind of recovery of some preproduction balances, which we reduced by about 50% during the year. And then also a $25 million reduction in working capital, which I'd categorize that as kind of low-hanging fruit. So, you know, I'm encouraged by the efforts the team has made around our working capital. At the beginning of the year, it was roughly 22% of our sales. And at the end of the year here, it's a little over 16%. We've stated kind of our longer-term target around primary working capital, that being, you know, receivables, inventory, and payables is 15%. So we've made a nice move here, in the fiscal year."
-- Matthew Pauley, Vice President and CFO

While the cash-rich position creates optionality for investment or future shareholder returns, fiscal 2026 cash generation is expected to revert to more sustainable levels as management exhausts one-time working capital actions.

Looking Ahead

Management guided for flat to slightly down fiscal 2026 revenue, tracking projected 5% to 6% declines in North American OEM volumes, with margin tailwinds from $8 million in implemented price increases partially offset by rising Mexican labor costs. The company reaffirmed long-term margin goals of 18% to 20% gross margin and low teen EBITDA margin, emphasizing ongoing operational, portfolio, and working capital improvements. No new share repurchase or M&A activity is planned until greater business predictability is achieved; capital remains allocated to organic growth and transformation initiatives.