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DATE

Wednesday, May 13, 2026 at 9 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Ryan Schroeder
  • Chief Financial Officer — Nicholas Vlahos
  • Director of Investor Relations — Marianne Barr

TAKEAWAYS

  • Net Sales -- $59.7 million, a 6% decrease, primarily due to reduced shipments in returnable transport packaging products, partially offset by higher truck mirror assemblies sales.
  • Sequential Sales Growth -- Net sales rose 4% from the prior quarter, attributed to improved order execution and a strengthening demand environment despite continued softness in returnable dunnage businesses.
  • Backlog -- $82.2 million at period end, reflecting sequential growth for a second consecutive quarter, though 8% below $85.9 million at the prior-year period end.
  • Gross Margin -- 20% of net sales ($11.9 million), down from 22.4% ($14.2 million) year over year, driven by volume decline and below-plan performance at Big 3, partially offset by new products and price increases.
  • Operating Profit -- $1.3 million or 2.2% of net sales, versus $3.2 million or 5.1% a year ago.
  • Adjusted EBITDA -- $3 million or 5% of net sales, a decline from $4.6 million or 7.3% previously, with the decrease mainly caused by Big 3's below-plan operating performance and lower returnable packaging volumes.
  • Net Income -- $600 thousand, or $0.11 per diluted share, compared to $1.9 million, or $0.31, in the prior year.
  • Returnable Racks Issue -- Management identified that "orders quoted in the fourth quarter...were discovered to be below our margin threshold," with corrective actions implemented and the financial impact expected to be contained to the first half, as stated by Schroeder.
  • Cash Flow from Operations -- $3.5 million, a $5.4 million year-over-year improvement and reversal from cash usage in the previous year.
  • Debt Reduction -- Long-term debt at $33 million, supporting management's ongoing deleveraging focus; debt-to-equity improved to 26.6%, down from 34.3% at prior year-end.
  • Inventory -- $53.1 million, down $3.3 million from year-end, representing a 5.9% decline.
  • ERP Implementation -- Belvac launched a new ERP system on the first day of the second quarter, with management reporting successful order management and a completed April close.
  • Capital Allocation -- The company repurchased 21,000 shares in the period and maintained its regular quarterly dividend.
  • Order Momentum -- Management highlighted "building order momentum at both Eberhard and Belvac," with improved customer commitment for the second half of the year.

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RISKS

  • Schroeder stated, "an operating issue within our returnable racks businesses which resides within Big 3 Precision pressured consolidated gross margin and net income for the quarter," with the pricing misstep causing below-plan performance at Big 3, expected to continue affecting financials through contract runoff in the first half of the year.
  • Vlahos cited, "Gross margin as a percentage of net sales for the 2026 was 20% or 11.9 million compared to 22.4% or 14.2 million in 2025," attributing the decline to reduced volumes and below-plan performance at Big 3.

SUMMARY

Management disclosed that backlog increased sequentially, indicating demand improvement, yet backlog remains below last year’s comparable period. Recent operational missteps at Big 3, involving underpriced contract awards, created a measurable negative impact on margin and profitability. Cash from operations showed a sharp reversal versus the previous year, supporting debt reduction, continued capital return, and enhanced balance sheet flexibility.

  • The launch of a new ERP system at Belvac was presented as a critical initiative supporting process and operational improvements, with successful execution in early weeks.
  • Order trends at Eberhard and Belvac were identified as positive, with customer commitments extending into the second half, which management linked to greater visibility and confidence.
  • Management indicated ongoing review of pipeline M&A opportunities while “staying the course” with their organic growth orientation and deleveraging priorities.
  • Big 3’s margin headwinds were presented as time-bound to first half contract runoff; however, the specific financial impact size and duration were not detailed beyond management’s stated expectation.

INDUSTRY GLOSSARY

  • Dunnage: Reusable interior packaging or inserts engineered to protect and secure components within returnable packaging systems for industrial assembly and transport.
  • ERP (Enterprise Resource Planning): Integrated software platform for automating and managing business functions, including order management, inventory, and financial close processes.
  • Returnable Racks: Custom-designed transport racks used repeatedly for moving industrial components, especially in automotive and manufacturing supply chains.

Full Conference Call Transcript

Marianne Barr: Marianne, the floor is yours. Good morning, and thank you, everyone, for joining us this morning for a review of The Eastern Company's results for the 2026. With me on the call are Ryan Schroeder, chief executive officer and Nicholas Vlahos, chief financial officer. The company issued its earnings press release yesterday after the market closed. If anyone has not yet seen the release, please visit the Investor Information section of the company's website www.easterncompany.com, where you will find the release under Financial News. Please note that some of the information you will hear during today's call will consist of forward-looking statements about the company's future financial performance and business prospects.

Including, without limitation, statements regarding revenue, gross margins, operating expenses, other income and expenses, taxes, and business outlook. These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward-looking statements. We undertake no obligation to review or update any forward-looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our SEC filings including Form 10 ks filed with the SEC on 03/03/2026 for the fiscal year 2025.

In addition, during today's call, we will discuss non GAAP financial measures that we believe are useful as supplemental measures of Eastern's performance. These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. A reconciliation of each of the non GAAP measures discussed during today's call to the most directly comparable GAAP measure can be found in the earnings press release. With that introduction, I will turn the call over to Ryan.

Ryan Schroeder: Thank you, Marianne, and good morning, everyone. Welcome to The Eastern Company's First Quarter 26 Earnings Conference Call. Following my prepared remarks, Nick will walk through the financial results in detail, after which we will open the line for questions. I want to start this morning with our headline view of our Q1 performance and the lens through which we are managing the business as we move into the second quarter and look ahead to the balance of 2026. This was a quarter with positives and negatives. On the positive side, net sales of $59.7 million improved sequentially from the fourth quarter by 4%. The sequential improvement reflects improved order execution and an improving demand environment.

Notably, the sequential improvement was achieved despite continued softness in our returnable dunnage businesses. Which weighed on the year over year comparison. We also experienced a 1-time destocking action by a customer of Eberhard. Strengthening order conversion drove sequential backlog growth to $82.2 million for the second consecutive quarter, continuing the recovery from the trough we reported in 2025. Order rates strengthened across virtually all of our segments. The underlying demand recovery we identified coming out of Q4 is intact and is showing early signs of broadening. And we delivered a $5.4 million year over year improvement in cash flow from operations. Reversing a use of cash in 2025.

On the other side of the ledger, an operating issue within our returnable racks businesses which resides within Big 3 Precision pressured consolidated gross margin and net income for the quarter. Consequently, we reported Q1 adjusted gross adjusted EBITDA of $3 million compared with 4.6 million in both 2025. Excluding the big 3 impact, the EBITDA across the rest of the portfolio was broadly in line with prior quarter and prior year periods. Our Q1 performance reflects 3 principal dynamics: and I want to walk through each in turn. Beginning with the operating issue at big 3. In Q1 , our Big 3 business recorded a below plan operating performance.

I want to be clear about what happened what we have done about it, and the time frame over which the financial impact will work through our income statement. Within Big 3, to fill plant capacity against the prolonged period of soft demand, our racks team quoted orders in the fourth quarter, which were discovered to be below our margin threshold. Having identified and addressed the root cause of the below plan performance, we have heightened the quoting processes, adjusted the delegation of authority, and installed a cross functional review process that improves accountability. We have determined that the financial impact is contained to the first half 26 while the effective contracts run off.

We are honoring our commitment to customers who receive these contracts preserving the relationship that matters to the long term value of this business. In fact, we continue to see backlog in this business grow. And despite this operational snafu, our operational turnaround is on track. Turning to demand to the demand environment. We are seeing improvements across virtually all of our business segments. The market signals are encouraging. Backlog grew sequentially for the second consecutive quarter. Reflecting strengthening order conversion across the portfolio. We are seeing building order momentum at both Eberhard and Belvac. Notably at Belvac, that activity is supported by an early stage recovery in heavy duty truck build rates at our major OEMs.

Several of which have been adding capacity in their own plants. We also are seeing customers commit to orders for the second half of 2026, which gives us better visibility than we had at this point a year ago. Taken together, the demand environment heading into the remainder of 2026 is more constructive than it was in 2025. The trajectory of the order book and our customer engagement is moving in the direction that have been described for several quarters. That said, the macro backdrop continues to require active monitoring. And we are managing the business with appropriate caution as the recovery solidifies.

Our operational and commercial work in Q1 included positioning each business to win more business, fulfill it profitably and capture operating leverage as demand recovers. Doing so ahead of new program launches scheduled across the second and third quarters. We believe these are the right investments at the right point in the cycle. At Eberhard, we are applying lean principles to compress lead times and reduce inventory with no material capital required. The result is a more responsive footprint for both existing products and new program launches. Most significant of those launches is a new door actuation program for our customer's next generation side by side ATV that is ramping up across the second and third quarters of this year.

At Big 3, alongside corrective action measures taken we have taken we are making capacity investments designed to deliver operating leverage. Includes automation and robotics, that expand welding throughput without adding headcount and enabling lights out and weekend production. At Belvac, we went live on a new ERP system on the first day of the second quarter. The new platform is expected to support more efficient order management inventory visibility, and financial close processes as Velvac continues to capture the recovery underway in the heavy duty truck market.

We are into week 6 of this major initiative, and while it is not a finished project just yet, we are taking, making and shipping orders and have been able to successfully close the month of April. And now moving on to the balance sheet and capital allocation. Deleveraging the balance sheet remains a clear priority. In Q1 , we continue to reduce debt continued our regular quarterly dividend repurchased shares under the authorized program, and generated meaningful cash from operations. Strengthening the balance sheet gives us the capacity to absorb periods of operational pressure like the 1 we are reporting today, without compromising the businesses or our strategic plan.

It also preserves our optionality on M&A, Allowing us to move on opportunities when they meet our criteria. I will now turn the call over to Nick to review our financial results for the first quarter. Nick?

Nicholas Vlahos: Over to you. Thanks, Ryan. Beginning with net sales for the 2026, net sales decreased approximately 6% to $59.7 million from $63.3 million in 2025. Due primarily to decreased shipments resulting from lower order volume of returnable transport packaging products. The decrease was partially offset by increased sales of truck mirror assemblies. Our backlog as of 04/04/2026 was 82.2 million down approximately 8% from $85.9 million a year ago. Primarily reflecting softer order activity in returnable transport Notably, backlog increased modestly on a sequential basis from $81.1 million at fiscal year end. Gross margin as a percentage of net sales for the 2026 was 20% or 11.9 million compared to 22.4% or 14.2 million in 2025.

This decrease reflects a decline in volumes on existing products which spread manufacturing costs across a smaller revenue base, and below plan operating performance at Big 3 as Ryan detailed. These factors were partially offset by new product contributions, and price increases on existing products. As a percentage of net sales, product development costs were 1.7% in the 2026 compared to 1.8% in the prior period. This reflects continued investment in new products across our business units while maintaining cost discipline relative to our revenue base. Selling and administrative expenses for the 2026 decreased $300 thousand, or 2.8%, to $9.6 million compared to 9.8 million in 2025.

The decrease was driven by lower compensation and related charges and lower commission charges that were partially offset by higher legal and professional expenses. Operating profit for the 2026 was $1.3 million or 2.2% of net sales compared to 3.2 million or 5.1% of net sales in the prior year period. Other income and expense for the 2026 was $13 thousand of income compared to $200 thousand of expense in the prior period. Interest expense in the 2026 was $528 thousand, a modest decline from interest expense of 617 thousand in the same period in the prior year.

Net income from continuing operations for the first quarter was $600 thousand or $0.11 per diluted share compared to 1.9 million or $0.31 per diluted share in the prior year period. Turning to adjusted EBITDA, first quarter 26 adjusted EBITDA from continuing operations was 3 million or 5% of net sales compared to $4.6 million or 7.3% of net sales in the prior year period. The 32 basis point margin compression reflects 2 factors listed in the order of magnitude. The most significant driver was Big 3's, below plan operating performance. And lower volume in returnable transport packaging.

Turning to the balance sheet, I want to highlight several dynamics that underscore our financial stability and the continued progress we are making on our capital structure priorities. Total assets at the end of the first quarter were $217 million essentially flat compared to $217 million at fiscal year end. On working capital, we ended the quarter at 71.3 million compared to $66.1 million in the prior year period. With a current ratio of 3.5x. Inventory declined $3.3 million to 53.1 million representing approximately a 5.9% from year end. Accounts receivables were $32.6 million up modestly from 30.1 million at year end. On debt and leverage, we continue to reduce our long term debt.

Ending the quarter with a balance of $33 million at quarter end. Our total debt to equity ratio improved to 26.6%, down substantially from 34.3% at the end of 2025. We remain comfortably within all of our covenants under our Citizens Bank credit agreement and we have 67 million of availability on our 100 million revolving facility that provides us with significant financial flexibility as we look ahead. Cash generated from operations in the quarter was $3.5 million, a strong reversal from the $1.9 million usage in the prior year first quarter. Capital expenditures were 900 thousand Consistent with our capital allocation policy, we repurchased approximately 21 thousand shares during the quarter.

To summarize, our strengthening balance sheet and borrowing capacity gives us the flexibility to fund organic growth and selectively pursue disciplined M&A pipeline. That completes my financial review. I will now turn the call back to Ryan. Ryan?

Ryan Schroeder: Thanks, Nick. Before we open the line for questions, I want to leave you with a couple of key takeaways. Our corporate strategy is unchanged. And we are staying the course. We continue to deleverage and strengthen the balance sheet The commercial orientation of our businesses remain focused on an organic growth mindset. We are investing in the people, processes, and programs to support that orientation and our pipeline of potential acquisition targets is filling. And we are well positioned to move decisively when the right opportunity meets our criteria. With that, I will open up for questions.

Operator: Thank you very much. At this time, we will be conducting our question-and-answer session. If you would like to ask a question, A confirmation tone will indicate that your line is in the queue. You may press Star 2 if you would like to remove your question from the queue. And for anyone using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Just a reminder there. If you would like to ask a question, you can do so by pressing star 1 on your phone keypad now. I am not seeing anyone in the queue at this moment.

There are no further questions at this time. I would like to turn the floor back over to Ryan Schroeder for closing comments.

Ryan Schroeder: Thank you for attending our call today. And I would like to thank you for your continued support in Eastern. Please reach out to me or Nick if you have any additional questions. We look forward to updating you in the next quarter. Thank you very much.

Operator: This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. We thank you for your participation.