Wow thank you so much for your kind words. I have worked very hard this past year, learned and improved a lot so it is always great to hear when people like my analysis.

I just discovered your blog thru Sahara and I was about to ask you about the pension issue but just realized you did it, so waiting for Sahara to answer.

Thanks again and keep the good job

I saw your excellent write up about Strattec and really enjoyed it. Thanks a lot for the mention and kind words on your blog, I greatly appreciate them.

I have a question for you though since I am assuming that you have more knowledge about evaluating pensions than I do and I agree that I would rather they do away with the pension plan since it will eventually become a drag on its results.

I also noticed the relatively high pension numbers when I was doing my research on Strattec and that STRT’s discount rate % estimates has dropped in recent years which is what caused the estimated pension amount to jump in recent years.

My question is that unless a lot of its employees start retiring and Strattec has to start paying out a big portion of its earnings towards pensions, than isn’t the rise in pension obligations due to the lowering of the discount rate, just an accounting estimate of what the company MAY have to pay out in the future and that those estimates will have no current or short term affect on Strattec’s actual results?

I am very interested to see your thoughts on this as I am relatively new at evaluating pensions and with my current understanding did not foresee any kind of short or medium term problems, unless a lot of its employees start retiring, which is why I did not mention pensions in my write up and did not really factor that into my evaluation of the company at all.

I’ve taken a look at them today. I didn’t really have anything new to say about their business, you did a great job of covering that. But I am concerned about their pension deficit and did a post discussing that. Unfortunately I couldn’t get comfortable with it and so won’t invest in them, but I do agree that they seem like a great company.

That’s very nice of you to say, thank you.

Strattec’s impressive returns are especially strange given that their three big customers presumably have a lot of bargaining power. Management must be doing a very good job with working capital management or something, it’s a little baffling. It’s unlikely but if I do have any insights I will get back to you, whether I end up writing them up or not.

Thank you for your compliment and question.

Actually, and I do not say this much now with the amount of research I do, I am not sure.

In the early 2000’s Strattec had massive market share which led to a very clear competitive advantage which enabled the company to have some pricing power within its lock and key division, and it used to break out its market share every year of the lock and key market, which was over 60% in the US and over 20% of the entire world, for several years after its spinoff from Briggs and Stratton and I am assuming around that level for a while before that as well.

With the change in the lock and key market after it was spun off, Strattec started to lose its market share and competitive advantage and now Strattec does not even say what its market share is in the lock and key area.

Strattec also does not separate out what percentage of sales and profits each one of its products contributes to its results.

All of the above make it difficult to determine if Strattec still has some minor competitive advantages in the lock and key market which would explain its high ROIC. Its superior management could also be why the company is able to maintain a high ROIC as well.

It is not because of its VAST Alliance because that has thus far not turned a profit. This year should be the first profitable one for VAST as a whole. Also, I am almost certain that Strattec does not have any kind of pricing power in its other product lines, outside of maybe some residual pricing power in the lock and key segment due to historical ties with companies, due to its heavy competition on its other newer products.

Overall I am not sure why Strattec has been able to keep its ROIC high over time unless it has some minor competitive advantages within some of its product lines.

I am excitedly looking forward to your take on Strattec as I have just recently found your site, read all of your posts thus far, and love the work you put on your blog and I am very interested to see your analysis of Strattec. When I get back into posting some links I am definitely going to be mentioning your blog as one people should visit often as the analysis you put forth is fantastic.

Strattec are on my to do list actually, so I may have a post on them in the not to distant future.