Executive Summary / Key Takeaways

• Defense Segment Dominance: National Presto's investment thesis is increasingly centered on its robust Defense segment, which delivered significant sales growth of 51% in Q2 2025 and 49% in H1 2025, driven by a substantial $1.37 billion backlog and recent contract awards, providing long-term revenue visibility.
• Housewares Segment Under Pressure: The Housewares/Small Appliance segment faces severe profitability challenges, primarily due to the 145% "Trump administration's tariffs" on imported goods and a $2.70 million vendor deposit impairment, leading to an operating loss and a strategic pause in new product initiatives.
• Strategic Streamlining in Safety: The nascent Safety segment, a drag on consolidated results, is undergoing strategic streamlining with a recent divestiture to focus on core intellectual property, indicating a pragmatic approach to non-core assets.
• Capital Allocation Prioritization: NPK's capital allocation strategy prioritizes the high-growth Defense segment, evidenced by increased inventory investments and capital expenditures, which has, however, led to a reduction in interest income from marketable securities.
• Resilient Liquidity Despite Shifts: Despite a decline in working capital and current ratio, management asserts sufficient liquidity, supported by operating cash flows and an expanded $50 million credit facility, to fund growth and dividend payments.

The Enduring Strength of a Diversified Industrial Player

National Presto Industries, Inc. (NYSE:NPK) stands as a testament to enduring American manufacturing, with a history stretching back to 1905. What began as a housewares innovator has strategically evolved into a diversified industrial entity, now primarily driven by its robust Defense segment. This transformation, marked by a series of calculated acquisitions and adaptations to market dynamics, positions NPK as a unique player in the industrial landscape, balancing the stability of government contracts with the cyclicality of consumer goods and the potential of emerging safety technologies.

NPK operates across three distinct business segments: Housewares/Small Appliance, Defense, and Safety. Its overarching strategy involves continuous evaluation of acquisition opportunities that align with these segments and making targeted capital investments to fuel growth. The company's foundational strengths lie in its established brand recognition in housewares and its specialized, integrated manufacturing capabilities within the defense sector.

In the highly competitive defense industry, NPK's Defense segment, primarily through its AMTEC Corporation subsidiary, has carved out a significant niche. It possesses the unique capability to deliver virtually all aspects of medium caliber training and tactical rounds, encompassing the fuze, detonator, metal parts (including the cartridge case), and the final load, assemble, and pack (LAP) operations. This integrated approach provides a competitive edge, ensuring reliability and cost-effectiveness for the U.S. Department of Defense (DOD) and prime contractors. AMTEC's status as a sole prime contractor for the 40mm family of ammunition cartridges underscores its technological and operational leadership in this specialized area, offering a strong competitive moat against larger defense contractors like Lockheed Martin (LMT) and General Dynamics (GD) who focus on more complex, high-tech systems. While LMT and GD lead in innovation speed and scale, NPK differentiates through its specialized expertise and potentially faster production cycles for its niche products.

The Housewares/Small Appliance segment, anchored by the "Presto Control Master" brand, differentiates itself through user-friendly design, reliability, and proprietary features such as thermostatic controls. These features are designed to offer notably better performance in temperature regulation and energy efficiency compared to more generalized offerings from competitors like Hamilton Beach Brands (HBB) or Whirlpool (WHR). NPK's strategy here emphasizes product durability and direct retail relationships, fostering strong customer loyalty despite a more measured pace of new product introduction compared to its larger, more agile rivals.

The Safety segment, a more recent venture, leverages a cloud-based learning and analytics engine integrated with various sensing devices. This technology monitors environmental data like temperature, smoke, carbon monoxide, motion, humidity, and water to predict, alert, and prevent potential safety issues. While specific quantifiable performance metrics for this technology are not publicly detailed, its stated goal is to provide comprehensive protection for buildings, homes, assets, and occupants. This positions NPK in an evolving market, competing with broader IoT platforms and smart home technologies, where the emphasis is on effective data analysis and proactive alerting.

Defense Segment: The Unquestioned Growth Catalyst

The Defense segment remains the unequivocal growth engine for National Presto. In the second quarter of 2025, net sales for this segment surged by an impressive 51% to $99.81 million, up from $66.13 million in the prior-year period. This robust performance extended to the first six months of 2025, with sales increasing by 49% to $180.75 million from $121.17 million. This growth is primarily attributed to increased shipments from the segment's substantial backlog, which stood at $1.37 billion as of June 29, 2025, a significant increase from $1.09 billion at December 31, 2024. Management anticipates fulfilling this backlog within an 18- to 42-month period, providing clear long-term revenue visibility.

The operational effectiveness of the Defense segment is further highlighted by its profitability. Gross profit for the segment increased by $6.42 million in Q2 2025 to $19.20 million, directly reflecting the higher sales volume. Operating earnings in the Defense segment also climbed significantly, rising by 61% from $9.04 million in Q2 2024 to $14.56 million in Q2 2025. This strong performance is supported by strategic capital investments; the company reported $25.45 million in purchases of property, plant, and equipment in the first six months of 2025, a substantial increase from $1.05 million in the same period of 2024, largely to support augmented Defense segment awards.

Further solidifying its outlook, NPK's AMTEC Corporation subsidiary was awarded a $101.10 million option under its current five-year 40mm systems contract on July 29, 2025. Deliveries under this award are scheduled to commence in mid-2027 and continue through early 2028. This continuous stream of government contracts underscores the critical nature of NPK's offerings and its entrenched position within the U.S. defense supply chain, benefiting from ongoing U.S. reindustrialization efforts and global supply chain fragmentation.

Housewares and Safety: Strategic Adjustments Under Pressure

In stark contrast to the Defense segment's robust performance, the Housewares/Small Appliance segment has faced significant headwinds. Despite a 9% increase in net sales to $20.35 million in Q2 2025 and a 6% increase to $42.27 million in H1 2025 (driven by unit shipments and pricing), the segment's profitability has been severely impacted. Gross profit for Housewares/Small Appliance decreased by $2.98 million in Q2 2025 to a mere $480,000, and by $4.63 million in H1 2025 to $1.94 million. This decline is primarily attributed to the imposition of "Trump administration's tariffs," now set at 145% on certain imported goods from the Orient after January 31, 2025. These tariffs are expensed as period costs under the LIFO inventory valuation method, directly eroding gross margins. Increases in material costs and a less favorable product mix further exacerbated the situation, leading to an operating loss for the segment.

Adding to these challenges, NPK recorded a $2.70 million impairment of a vendor deposit in Q2 2025 within the Housewares segment, as the vendor filed for bankruptcy, making recovery unlikely. In response to these pressures, management has strategically paused new product announcements and purchasing activity in the Housewares segment, signaling a shift from its historical emphasis on innovation in this area. This pragmatic approach aims to mitigate further losses and stabilize the segment amidst external and internal pressures.

The Safety segment, established in 2019, continues to be a nascent venture. While net sales increased to $290,000 in Q2 2025 and $1.07 million in H1 2025, the segment consistently incurred operating losses in both periods. Recognizing its startup nature and limited revenues, NPK is strategically streamlining this business. On July 31, 2025, the company sold certain assets of its OneEvent Technologies, Inc. subsidiary for $279,000 plus contingent consideration, while crucially retaining the important intellectual property. This divestiture of the refrigeration/freezer monitoring portion of the business aims to focus the segment's direction, potentially towards more promising applications of its core sensing and cloud-based analytics technology.

Consolidated Financials and Liquidity: A Strategic Rebalancing

On a consolidated basis, NPK reported net sales of $120.45 million in Q2 2025, a significant 42% increase year-over-year, and $224.09 million for H1 2025, up 39%. However, net earnings decreased by 15% to $5.15 million in Q2 2025, though they edged up 1% to $12.76 million for H1 2025. The disparity between strong top-line growth and more modest (or declining) bottom-line performance highlights the drag from the Housewares segment's tariff and impairment issues. Gross profit increased by 26% in Q2 and 28% in H1, but other income decreased significantly by 65% in both periods, primarily due to lower interest income on marketable securities. This reduction stems from a lower average daily investment, as capital was reallocated to support the expanded Defense segment's inventory needs.

Liquidity and capital resources reflect this strategic rebalancing. Net cash provided by operating activities was $1.54 million during H1 2025, a notable shift from $28.33 million cash used in H1 2024. This change was influenced by a decrease in accounts receivable levels, partially offset by reduced payable/accrual levels and increased inventory and vendor deposits, particularly for the Defense segment. Working capital decreased by $13.87 million during H1 2025 to $278.36 million, and the current ratio declined from 4.90 at December 31, 2024, to 4.20 at June 29, 2025.

Despite these shifts, NPK maintains a solid financial foundation. The company has an unsecured line of credit for short-term operating cash needs, which was increased to $50 million as of June 29, 2025, with an outstanding balance of $12.64 million. Management asserts that NPK possesses "sufficient liquidity in the form of operating activities cash flows and a credit facility to meet all of its anticipated capital requirements, to make dividend payments, and to fund future growth through acquisitions and other means." This indicates a strategic confidence in its ability to fund the Defense segment's growth while managing challenges in other areas.

Risks and Outlook

The investment outlook for NPK is largely tied to the continued execution and expansion of its Defense segment. While the substantial backlog and new contract awards provide significant revenue visibility, the segment remains inherently dependent on the product needs and governmental funding of the DOD. Any shifts in military spending or contract modifications could impact future performance.

The Housewares/Small Appliance segment faces persistent challenges from tariffs and supply chain disruptions. The 145% tariffs on goods from the Orient continue to pressure gross margins, and the recent vendor bankruptcy highlights the fragility of global supply chains. The strategic pause in new product development, while prudent, may limit future growth potential in this segment. Furthermore, as the majority of Housewares suppliers are in China, fluctuations in the U.S. dollar and Chinese Renminbi exchange rates could impact product costs.

The Safety segment, despite its strategic streamlining, is still in its early stages and is expected to remain a drag on consolidated results in the near term. The success of its focused intellectual property will be critical for its long-term viability.

Looking ahead, NPK plans to continue evaluating acquisition opportunities that align with its business segments and will make further capital investments, particularly in the Defense segment, where appropriate returns are projected. The Defense segment is expected to remain the primary growth driver, leveraging its integrated capabilities and strong government relationships.

Conclusion

National Presto Industries is undergoing a significant strategic reorientation, with its Defense segment firmly established as the primary engine of growth and profitability. The substantial and growing backlog, coupled with new contract awards, provides a compelling long-term investment narrative centered on stability and specialized manufacturing expertise in a critical sector. While the Housewares/Small Appliance segment grapples with significant external pressures like tariffs and internal operational challenges, management's decisive actions to pause new initiatives and streamline operations demonstrate a pragmatic approach to capital allocation. The nascent Safety segment, though currently a drag, is being strategically refocused to harness its core technological intellectual property.

For investors, NPK represents a unique opportunity to gain exposure to a specialized defense contractor with a strong competitive moat and clear growth trajectory, albeit one balanced by the volatility of its consumer-facing business. The company's ability to effectively convert its defense backlog into revenue, manage the ongoing challenges in housewares, and strategically develop its refined safety technology will be paramount. The current focus on capital deployment into the Defense segment, while impacting short-term portfolio income, underscores a commitment to its most promising growth avenue, positioning NPK for continued long-term value creation through its core strengths.