Shares of The Eastern Company EML have gained 1.4% since the company reported its earnings for the quarter ended July 4, 2026, outperforming the S&P 500 Index’s 0.2% change over the same period. However, over the past month, Eastern shares have declined 1.4% compared to the S&P 500’s 4.1% rise.
Eastern’s second-quarter 2026 adjusted net income was 15 cents per share, down from 57 cents in the prior-year quarter.
Net sales declined 12% year over year to $61.8 million from $70.2 million.
Net income from continuing operations increased to $5.6 million from $2 million a year earlier. However, GAAP earnings included a one-time, non-cash bargain purchase gain of $6.5 million related to the Sungear and Crown Precision acquisitions. Excluding that gain and other adjustments, adjusted net income from continuing operations fell to $0.9 million from $3.5 million in the prior-year quarter.
EML’s Other Key Business Metrics
Eastern ended the quarter with a backlog of $126.2 million, up 45% from $87.1 million a year earlier. The increase included $19 million of acquired aerospace orders as well as higher orders for truck mirror assemblies, returnable transport packaging, and latch and handle assemblies. Gross margin contracted to 20.6% from 23.3% a year ago. Adjusted EBITDA from continuing operations decreased approximately 49% to $3.4 million from $6.7 million.
Cash flow showed improvement, with net cash provided by operating activities reaching $12 million during the first six months of 2026 versus $1.9 million a year earlier. Eastern finished the quarter with $15.1 million in cash, while long-term debt stood at $41.7 million, up from $33.9 million at year-end, primarily reflecting acquisition-related borrowings.
Management Commentary and Factors Influencing EML’s Results
Management said sequential improvement in results and a stronger order book increased confidence in the business heading into the second half. Heavy-truck build rates have improved, benefiting Velvac and Eberhard, while the returnable transport packaging business has broadened its customer base. Management also said the below-margin Big 3 rack contracts have run off, with new business being booked at healthier margins.
The year-over-year revenue decline reflected $5.7 million of lower truck mirror assembly shipments, $3.4 million of lower returnable transport packaging shipments and $0.9 million of lower latch and handle assembly shipments. These declines were partly offset by $1.7 million of aerospace sales from the acquired businesses. Gross margin was pressured by lower volume, the runoff of the below-margin contracts and tariff costs on China-sourced products of about $1.9 million, most of which management said was recovered through pricing.
Outlook
Management expects a strong second half, supported by rising heavy-truck builds and backlog conversion. It expects the majority of the current backlog to convert to revenues during the balance of 2026, while the Big 3 rack backlog is largely filled through almost the remainder of the year. Management also expects gross margin to improve as second-half volume and product mix strengthen.
Other Developments at EML
Eastern acquired California-based precision manufacturers Sungear and Crown Precision effective June 1, expanding into aerospace and defense. The acquisitions contributed one month to second-quarter results. Management said the businesses could generate roughly $20 million of combined annual revenues and expects them to be accretive this year. Over time, Eastern is targeting gross margins of 20%-30% for the acquired operations through pricing, throughput and operational improvements.
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Eastern Company (The) (EML): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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