In addition, we’ve taken steps to ensure we have the right culture and opportunities in place to enable our teammates who are Eastern’s greatest resource to drive the company forward every day. We’ve created achievable plans for each of the three businesses, changed our structure to realize synergies across our despairing companies and strengthening our incentive system, so it properly rewards cross functional collaboration. Through these efforts, we are working to achieve more than what any one division is capable. We are also repositioning all three of our businesses and reviewing our global footprint, analyzing how to improve our assets and optimize Eastern’s efficiency. At Eberhard, for example, we are enhancing our portfolio of electromechanical products, focusing on new geographies and sectors, including government, where we can expand our business.
At Velvac, we are expanding our solutions for aftermarket in ways that will augment existing relationships. At Big 3, we are taking steps to leverage our metal fabrication and machining capabilities to increase performance. To sum up, we are committed to achieving operational excellence by focusing on Eastern’s operating costs, quality, on time delivery and especially employee safety. We expect our company to continue to play a unique role in the industry that embraces the move to electrification, the rejuvenation of internal combustion engine market, digitization and automation. We believe our capabilities are closely aligned with sustainable mobility, whether it be internal combustion engine or electric. And through sustainable returnable packaging and commercial vehicle accessories that increased improvement in miles per gallon will result in increased miles per gallon by reducing wind resistance.
With that overview, let’s open the floor to questions.
Operator: Sorry, sir, I interrupted you. Please continue.
Ernie Hawkins: We’ll take questions from the web first. We do have a few questions. First question, you grew gross margin by 280 basis points in 2023. How should we think about margin expansion in 2024? Is another 280 basis point expansion possible?
Mark Hernandez: As I mentioned on our previous calls, we have aspirational goals to always increase gross margins as far as we can extend them. And this is supplemented by our cost improvement efforts through One Eastern, utilizing One Eastern to lower or strengthen our position for purchasing, as well as vertical integration activities where we are bringing stuff in-house that we would normally pay outside services to other companies. So yes, I believe that we can continue this effort to grow gross margins.
Ernie Hawkins: Next question, as you get more active in M&A, what are your criteria in terms of size and profitability? Which business offers the most attractive opportunities?
Mark Hernandez: Well, like we started with SureFlex, we want to take the crawl, walk, run strategy going forward. We’re looking for things first on the vertical acquisition space that are smaller in nature, but can help our operations currently that currently exist today and improve our gross margins as well as we’re always looking for acquisitions that can add to our revenue enhancing capabilities and leverage the One Eastern strategy as we fold them into the Eastern company.
Ernie Hawkins: Next question. Mark, you’ve been CEO of Eastern for nearly a year. Can you share any learnings from the past year that you’d like to implement in the coming year?
Mark Hernandez: Well, it’s been a year of learning for me personally, but putting strategies on paper are just half the story. It’s actually the easier half to put a strategy on paper with the challenge that I’ve seen in learning I have is getting everybody on the same page to pull towards One Eastern. And we continue that effort. We’ve made significant progress, and that’s what led to the launch of the One Eastern strategy. Now all of our companies are not only looking to win for themselves, but looking to win for Eastern.
Ernie Hawkins: Revenue is down when compared to the prior year quarter and prior year, while earnings have strengthened. How do you see this going forward?
Mark Hernandez: Well, I look at this in two levels, breaking up into two pieces. One is, as supply chains normalize, there was a reduction in just in — I call just in case inventory, where our customers were buying extra inventory to protect themselves against the unreliable supply chains. So we see that resulted in our revenue as they cut back on their orders. I also see it as some headwinds that we know happened in the commercial vehicle industry as suppliers struggle to enhance the supply chain, so that the OEMs can increase their production levels to normal. And then that was coupled with some of the packaging solutions projects that are happening at the consumer packaging side not to be as robust as in previous years.
Ernie Hawkins: And our final question from the web. Were there any one time items in Q4 selling and administrative expenses?
Nicholas Vlahos: So I’ll take that question, Ernie. Thank you. And so yes, there were onetime expenses in selling and administrative expenses for recruiting and consulting fees. And then comparing on a prior year basis as well, there was a positive adjustment prior year due to the removal of bonus accrual.
Ernie Hawkins: With that operator, we’ll turn it back to you for any other questions from the audience.
Operator: [Operator Instructions] We have a question from Ross Davisson with Banneton Capital.
Ross Davisson: Just picking up on the gross margin question earlier and the information you provided, it sounds like as always there are some puts and takes on gross margin in the quarter with some things that are clearly ongoing like improved pricing that you’ve worked hard to change and the material and freight costs getting more favorable or less negative. But there’s also things like the LIFO adjustment. As you think through those puts and takes, what should our expectation be for gross margin? I know and you just reiterated like a long-term goal always to step that up. But in the short-term, is the 26.8% from this quarter unusually high because some of those more temporary things like the LIFO? Or is that a target you think you can keep attaining as we look ahead to 2024?
