Kimball Electronics Reports Q2 Results; Company Updates Guidance for Fiscal 2024
- Net sales totaled $421.2 million for the second quarter of fiscal 2024
- Operating income was $16.6 million, with a net income of $8.3 million
- The company expects challenging industry-wide pressures for the remainder of fiscal 2024
- Updated guidance for fiscal year 2024 includes a 2% to 4% decline in net sales compared to fiscal year 2023
- Net sales decreased by 4% compared to the same period last year
- An atypical charge in selling and administrative expenses negatively impacted operating income by approximately 40 basis points in the quarter
Insights
Kimball Electronics, Inc.'s reported 4% decrease in net sales for Q2 fiscal 2024 compared to the same quarter of the previous fiscal year suggests a contraction in revenue that may concern investors. Despite foreign currency providing a slight buffer, the overall downturn reflects broader economic pressures. The company's operating income has also seen a marginal decline, indicating a squeeze on profitability. However, the stability of margins, despite the sales decrease, could be perceived as a positive outcome of the company's cost management strategies.
From an investment perspective, the updated guidance for fiscal year 2024 is a critical factor. The expectation of a 2% to 4% sales decline, coupled with an operating income of 4.2% to 4.6% of net sales, adjusts the outlook and potentially recalibrates market expectations. The unchanged capital expenditure guidance suggests that the company remains committed to long-term growth initiatives, which may be a signal of management's confidence in future prospects despite current headwinds.
Examining the vertical market performance, Kimball Electronics has shown resilience in the Industrial sector with a 7% growth, which contrasts sharply with the 14% decline in the Medical sector. The Automotive sector's slight decline may reflect broader industry trends such as supply chain disruptions and a shift in consumer demand. These mixed results across sectors highlight the importance of a diversified portfolio in mitigating risks associated with sector-specific volatility.
It's also noteworthy that the company's proactive measures to align costs with slowing sales have preserved margin percentages. This strategic response to demand softening and production schedule changes by customers demonstrates agility in operations management. The ability to adapt to a fluctuating macro environment is crucial for maintaining competitive advantage and investor confidence.
The economic context surrounding Kimball Electronics' financial results is characterized by global macro headwinds and consumer pullback. The company's performance is a microcosm of the larger economic environment, where manufacturing output is being adjusted to meet lower demand. The mentioned 'challenging operating environment' likely refers to the broader issues such as inflationary pressures, supply chain challenges and geopolitical uncertainties impacting the electronics manufacturing services industry.
This environment impacts not only current operations but also future expectations, as evidenced by the updated guidance. Investors and stakeholders should consider these external factors when assessing the company's performance and future prospects. The focus on working capital management and the intent to improve cash conversion days could be a strategic move to enhance liquidity and financial resilience in uncertain times.
-
Net sales totaled
$421.2 million 4% decrease compared to the second quarter of fiscal 2023; foreign currency had a1% favorable impact on net sales year-over-year -
Operating income of
$16.6 million 3.9% of net sales, compared to$17.5 million 4.0% of net sales, in the same period last year -
Adjusted operating income of
$17.1 million 4.1% of net sales, compared to$17.8 million 4.1% of net sales, in the same period last year -
Net income of
$8.3 million $0.33 $10.7 million $0.43
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Three Months Ended |
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Six Months Ended |
||||||||||||
|
December 31, |
|
December 31, |
||||||||||||
(Amounts in Thousands, except EPS) |
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Net Sales |
$ |
421,235 |
|
|
$ |
436,696 |
|
|
$ |
859,316 |
|
|
$ |
842,585 |
|
Operating Income |
$ |
16,610 |
|
|
$ |
17,489 |
|
|
$ |
36,100 |
|
|
$ |
31,060 |
|
Adjusted Operating Income (non-GAAP) (1) |
$ |
17,094 |
|
|
$ |
17,829 |
|
|
$ |
36,407 |
|
|
$ |
31,165 |
|
Operating Income % |
|
3.9 |
% |
|
|
4.0 |
% |
|
|
4.2 |
% |
|
|
3.7 |
% |
Adjusted Operating Income (non-GAAP) % |
|
4.1 |
% |
|
|
4.1 |
% |
|
|
4.2 |
% |
|
|
3.7 |
% |
Net Income |
$ |
8,290 |
|
|
$ |
10,720 |
|
|
$ |
19,044 |
|
|
$ |
20,229 |
|
Adjusted Net Income (non-GAAP) (1) |
$ |
8,290 |
|
|
$ |
10,999 |
|
|
$ |
19,044 |
|
|
$ |
20,508 |
|
Diluted EPS |
$ |
0.33 |
|
|
$ |
0.43 |
|
|
$ |
0.75 |
|
|
$ |
0.81 |
|
Adjusted Diluted EPS (non-GAAP) (1) |
$ |
0.33 |
|
|
$ |
0.44 |
|
|
$ |
0.75 |
|
|
$ |
0.82 |
|
(1) A reconciliation of GAAP and non-GAAP financial measures is included below. |
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Richard D. Phillips, Chief Executive Officer, stated, “As we expected, the second quarter of fiscal 2024 was hard fought, with our team navigating a challenging operating environment. Global macro headwinds have persisted, and the consumer is pulling back. The markets we serve are experiencing demand softening, and our customers are changing production schedules and delivery date requirements. Sales in Q2 declined compared to the same period last year, with manufacturing output in the quarter being reduced to meet the lower demand. Margins, on the other hand, remained stable, thanks in part to proactive measures taken to align our cost structure with slowing sales. We expect industry-wide pressures for the remainder of fiscal 2024, and we have updated our guidance for sales and operating income for the full year to reflect these trends.”
Mr. Phillips continued, “Based on what we know today, it seems likely the macro environment will remain challenging for some time. Despite this near-term choppiness, we did not change our guidance for capital expenditures in fiscal 2024 as we continue to invest in long-term growth opportunities. With a strong funnel of new business supported by favorable industry megatrends, we’re deploying a balanced capital allocation strategy focused on organic growth, global expansion, and long-lasting customer relationships.”
The Company ended the second quarter of fiscal 2024 with cash and cash equivalents of
Net Sales by Vertical Market for Q2 Fiscal 2024:
|
Three Months Ended |
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Six Months Ended |
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December 31, |
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December 31, |
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(Amounts in Millions) |
|
2023 |
|
* |
|
|
2022 |
|
* |
|
Percent Change |
|
|
2023 |
|
* |
|
|
2022 |
|
* |
|
Percent Change |
||||||
Automotive (1) |
$ |
200.2 |
|
47 |
% |
|
$ |
205.2 |
|
47 |
% |
|
(2 |
)% |
|
$ |
412.7 |
|
48 |
% |
|
$ |
393.4 |
|
47 |
% |
|
5 |
% |
Medical (1) |
|
108.1 |
|
26 |
% |
|
|
125.6 |
|
29 |
% |
|
(14 |
)% |
|
|
210.5 |
|
25 |
% |
|
|
241.6 |
|
28 |
% |
|
(13 |
)% |
Industrial (1) |
|
112.9 |
|
27 |
% |
|
|
105.9 |
|
24 |
% |
|
7 |
% |
|
|
236.1 |
|
27 |
% |
|
|
207.6 |
|
25 |
% |
|
14 |
% |
Total Net Sales |
$ |
421.2 |
|
|
|
$ |
436.7 |
|
|
|
(4 |
)% |
|
$ |
859.3 |
|
|
|
$ |
842.6 |
|
|
|
2 |
% |
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* As a percent of Total Net Sales |
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(1) Beginning in fiscal year 2024, miscellaneous sales previously reported in Other are now reported in the respective three end market verticals; all |
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prior periods have been recast to conform to current period presentation |
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– Automotive includes electronic power steering, body controls, automated driver assist systems, and electronic braking systems |
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– Medical includes sleep therapy and respiratory care, image guided therapy, in vitro diagnostics, drug delivery, AED, and patient monitoring |
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– Industrial includes climate controls, automation controls, optical inspection, and public safety |
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Guidance for Fiscal Year 2024
The Company updated its guidance for fiscal year 2024 with net sales expected to decline
Commenting on today’s update, Jana T. Croom, Chief Financial Officer, stated, “It is important to highlight that our second quarter results included an atypical charge in selling and administrative expenses. We recorded a
Ms. Croom continued, “We remain focused on working capital management, and while inventory levels did improve in Q2, we still have an opportunity to drive down cash conversion days with better management of receivables and payables which will support a return to free cash flow generation in future quarters.”
Forward-Looking Statements
Certain statements contained within this release are considered forward-looking, including our fiscal year 2024 guidance, under the Private Securities Litigation Reform Act of 1995. The statements may be identified by the use of words such as “expect,” “should,” “goal,” “predict,” “will,” “future,” “optimistic,” “confident,” and “believe.” Undue reliance should not be placed on these forward-looking statements. These statements are based on current expectations of future events and thus are inherently subject to uncertainty. If underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. These forward-looking statements are subject to risks and uncertainties including, without limitation, global economic conditions, geopolitical environment and conflicts such as the war in
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. The non-GAAP financial measures contained herein include constant currency growth, adjusted operating income, adjusted net income, adjusted diluted EPS, and ROIC. Reconciliations of the reported GAAP numbers to these non-GAAP financial measures are included in the Reconciliation of Non-GAAP Financial Measures section below. Management believes these measures are useful and allow investors to meaningfully trend, analyze, and benchmark the performance of the company’s core operations. The company’s non-GAAP financial measures are not necessarily comparable to non-GAAP information used by other companies.
About Kimball Electronics, Inc.
Kimball Electronics is a multifaceted manufacturing solutions provider of electronics and diversified contract manufacturing services to customers around the world. From our operations in
To learn more about Kimball Electronics, visit: www.kimballelectronics.com.
Conference Call / Webcast
Date: |
|
February 6, 2024 |
Time: |
|
10:00 AM Eastern Time |
Live Webcast: |
|
investors.kimballelectronics.com/events-and-presentations/events |
Dial-In #: |
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404-975-4839 (other locations - 833-470-1428) |
Conference ID: |
|
626792 |
For those unable to participate in the live webcast, the call will be archived at investors.kimballelectronics.com.
Lasting relationships. Global success.
Financial highlights for the second quarter and year-to-date period ended December 31, 2023 are as follows:
Condensed Consolidated Statements of Income |
|||||||||||||
(Unaudited) |
Three Months Ended |
||||||||||||
(Amounts in Thousands, except Per Share Data) |
December 31, 2023 |
|
December 31, 2022 |
||||||||||
Net Sales |
$ |
421,235 |
|
|
100.0 |
% |
|
$ |
436,696 |
|
|
100.0 |
% |
Cost of Sales |
|
386,802 |
|
|
91.8 |
% |
|
|
402,505 |
|
|
92.2 |
% |
Gross Profit |
|
34,433 |
|
|
8.2 |
% |
|
|
34,191 |
|
|
7.8 |
% |
Selling and Administrative Expenses |
|
17,823 |
|
|
4.3 |
% |
|
|
16,702 |
|
|
3.8 |
% |
Operating Income |
|
16,610 |
|
|
3.9 |
% |
|
|
17,489 |
|
|
4.0 |
% |
Interest Income |
|
101 |
|
|
— |
% |
|
|
26 |
|
|
— |
% |
Interest Expense |
|
(6,137 |
) |
|
(1.5 |
)% |
|
|
(4,048 |
) |
|
(0.9 |
)% |
Non-Operating Income (Expense), net |
|
702 |
|
|
0.3 |
% |
|
|
726 |
|
|
0.2 |
% |
Other Income (Expense), net |
|
(5,334 |
) |
|
(1.2 |
)% |
|
|
(3,296 |
) |
|
(0.7 |
)% |
Income Before Taxes on Income |
|
11,276 |
|
|
2.7 |
% |
|
|
14,193 |
|
|
3.3 |
% |
Provision for Income Taxes |
|
2,986 |
|
|
0.7 |
% |
|
|
3,473 |
|
|
0.8 |
% |
Net Income |
$ |
8,290 |
|
|
2.0 |
% |
|
$ |
10,720 |
|
|
2.5 |
% |
|
|
|
|
|
|
|
|
||||||
Earnings Per Share of Common Stock: |
|
|
|
|
|
|
|
||||||
Basic |
$ |
0.33 |
|
|
|
|
$ |
0.43 |
|
|
|
||
Diluted |
$ |
0.33 |
|
|
|
|
$ |
0.43 |
|
|
|
||
Average Number of Shares Outstanding: |
|
|
|
|
|
|
|
||||||
Basic |
|
25,094 |
|
|
|
|
|
24,881 |
|
|
|
||
Diluted |
|
25,211 |
|
|
|
|
|
25,000 |
|
|
|
||
|
|
|
|
|
|
|
|
||||||
(Unaudited) |
Six Months Ended |
||||||||||||
(Amounts in Thousands, except Per Share Data) |
December 31, 2023 |
|
December 31, 2022 |
||||||||||
Net Sales |
$ |
859,316 |
|
|
100.0 |
% |
|
$ |
842,585 |
|
|
100.0 |
% |
Cost of Sales |
|
789,341 |
|
|
91.9 |
% |
|
|
779,073 |
|
|
92.5 |
% |
Gross Profit |
|
69,975 |
|
|
8.1 |
% |
|
|
63,512 |
|
|
7.5 |
% |
Selling and Administrative Expenses |
|
33,875 |
|
|
3.9 |
% |
|
|
32,452 |
|
|
3.8 |
% |
Operating Income |
|
36,100 |
|
|
4.2 |
% |
|
|
31,060 |
|
|
3.7 |
% |
Interest Income |
|
400 |
|
|
— |
% |
|
|
43 |
|
|
— |
% |
Interest Expense |
|
(11,584 |
) |
|
(1.3 |
)% |
|
|
(5,968 |
) |
|
(0.7 |
)% |
Non-Operating Income (Expense), net |
|
(429 |
) |
|
(0.1 |
)% |
|
|
1,226 |
|
|
0.1 |
% |
Other Income (Expense), net |
|
(11,613 |
) |
|
(1.4 |
)% |
|
|
(4,699 |
) |
|
(0.6 |
)% |
Income Before Taxes on Income |
|
24,487 |
|
|
2.8 |
% |
|
|
26,361 |
|
|
3.1 |
% |
Provision for Income Taxes |
|
5,443 |
|
|
0.6 |
% |
|
|
6,132 |
|
|
0.7 |
% |
Net Income |
$ |
19,044 |
|
|
2.2 |
% |
|
$ |
20,229 |
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
||||||
Earnings Per Share of Common Stock: |
|
|
|
|
|
|
|
||||||
Basic |
$ |
0.76 |
|
|
|
|
$ |
0.81 |
|
|
|
||
Diluted |
$ |
0.75 |
|
|
|
|
$ |
0.81 |
|
|
|
||
|
|
|
|
|
|
|
|
||||||
Average Number of Shares Outstanding: |
|
|
|
|
|
|
|
||||||
Basic |
|
25,067 |
|
|
|
|
|
24,854 |
|
|
|
||
Diluted |
|
25,240 |
|
|
|
|
|
24,985 |
|
|
|
||
| Condensed Consolidated Statements of Cash Flows | Six Months Ended |
||||||
(Unaudited) |
December 31, |
||||||
(Amounts in Thousands) |
2023 |
|
2022 |
||||
Net Cash Flow used for Operating Activities |
$ |
(17,922 |
) |
|
$ |
(71,921 |
) |
Net Cash Flow used for Investing Activities |
|
(24,365 |
) |
|
|
(41,886 |
) |
Net Cash Flow provided by Financing Activities |
|
38,859 |
|
|
|
91,435 |
|
Effect of Exchange Rate Change on Cash, Cash Equivalents, and Restricted Cash |
|
368 |
|
|
|
(593 |
) |
Net Decrease in Cash, Cash Equivalents, and Restricted Cash |
|
(3,060 |
) |
|
|
(22,965 |
) |
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period |
|
43,864 |
|
|
|
49,851 |
|
Cash, Cash Equivalents, and Restricted Cash at End of Period |
$ |
40,804 |
|
|
$ |
26,886 |
|
(Unaudited) |
|
|
|||
Condensed Consolidated Balance Sheets |
December 31, 2023 |
|
June 30, 2023 |
||
(Amounts in Thousands) |
|||||
ASSETS |
|
|
|
||
Cash and cash equivalents |
$ |
39,947 |
|
$ |
42,955 |
Receivables, net |
|
309,702 |
|
|
308,167 |
Contract assets |
|
81,891 |
|
|
78,798 |
Inventories |
|
455,736 |
|
|
450,319 |
Prepaid expenses and other current assets |
|
43,226 |
|
|
49,188 |
Property and Equipment, net |
|
275,984 |
|
|
267,684 |
Goodwill |
|
12,011 |
|
|
12,011 |
Other Intangible Assets, net |
|
10,993 |
|
|
12,335 |
Other Assets |
|
47,544 |
|
|
38,262 |
Total Assets |
$ |
1,277,034 |
|
$ |
1,259,719 |
|
|
|
|
||
LIABILITIES AND SHARE OWNERS’ EQUITY |
|
|
|
||
Current portion of borrowings under credit facilities |
$ |
86,765 |
|
$ |
46,454 |
Accounts payable |
|
279,909 |
|
|
322,274 |
Advances from customers |
|
42,717 |
|
|
33,905 |
Accrued expenses |
|
63,448 |
|
|
72,515 |
Long-term debt under credit facilities, less current portion |
|
235,000 |
|
|
235,000 |
Long-term income taxes payable |
|
3,255 |
|
|
5,859 |
Other long-term liabilities |
|
18,951 |
|
|
19,718 |
Share Owners’ Equity |
|
546,989 |
|
|
523,994 |
Total Liabilities and Share Owners’ Equity |
$ |
1,277,034 |
|
$ |
1,259,719 |
Other Financial Metrics |
|||||||||||
(Unaudited) |
|||||||||||
(Amounts in Millions, except CCD) |
|||||||||||
|
At or For the |
|
|
|
|
||||||
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
December 31, |
|
December 31, |
||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||
Depreciation and Amortization |
$ |
9.1 |
|
$ |
8.0 |
|
$ |
18.1 |
|
$ |
15.6 |
Stock-Based Compensation |
$ |
2.0 |
|
$ |
1.7 |
|
$ |
3.7 |
|
$ |
3.4 |
Cash Conversion Days (CCD) (1) |
|
117 |
|
|
97 |
|
|
|
|
||
Open Orders (2) |
$ |
836 |
|
$ |
1,037 |
|
|
|
|
||
(1) |
Cash Conversion Days (“CCD”) are calculated as the sum of Days Sales Outstanding plus Contract Asset Days plus Production Days Supply on Hand less Accounts Payable Days and less Advances from Customers Days. CCD, or a similar metric, is used in our industry and by our management to measure the efficiency of managing working capital. |
|
(2) |
Open Orders are the aggregate sales price of production pursuant to unfulfilled customer orders. |
|
Reconciliation of Non-GAAP Financial Measures |
|||||||||||||||
(Unaudited) |
|||||||||||||||
(Amounts in Thousands, except Per Share Data) |
|||||||||||||||
|
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
December 31, |
|
December 31, |
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Net Sales Growth (vs. same period in prior year) |
|
(4 |
)% |
|
|
39 |
% |
|
|
2 |
% |
|
|
39 |
% |
Foreign Currency Exchange Impact |
|
1 |
% |
|
|
(5 |
)% |
|
|
1 |
% |
|
|
(5 |
)% |
Constant Currency Growth |
|
(5 |
)% |
|
|
44 |
% |
|
|
1 |
% |
|
|
44 |
% |
|
|
|
|
|
|
|
|
||||||||
Selling and Administrative Expenses, as reported |
$ |
17,823 |
|
|
$ |
16,702 |
|
|
$ |
33,875 |
|
|
$ |
32,452 |
|
SERP |
|
(484 |
) |
|
|
(340 |
) |
|
|
(307 |
) |
|
|
(105 |
) |
Adjusted Selling and Administrative Expenses |
$ |
17,339 |
|
|
$ |
16,362 |
|
|
$ |
33,568 |
|
|
$ |
32,347 |
|
|
|
|
|
|
|
|
|
||||||||
Operating Income, as reported |
$ |
16,610 |
|
|
$ |
17,489 |
|
|
$ |
36,100 |
|
|
$ |
31,060 |
|
SERP |
|
484 |
|
|
|
340 |
|
|
|
307 |
|
|
|
105 |
|
Adjusted Operating Income |
$ |
17,094 |
|
|
$ |
17,829 |
|
|
$ |
36,407 |
|
|
$ |
31,165 |
|
|
|
|
|
|
|
|
|
||||||||
Net Income, as reported |
$ |
8,290 |
|
|
$ |
10,720 |
|
|
$ |
19,044 |
|
|
$ |
20,229 |
|
Adjustments After Measurement Period on GES Acquisition |
|
— |
|
|
|
279 |
|
|
|
— |
|
|
|
279 |
|
Adjusted Net Income |
$ |
8,290 |
|
|
$ |
10,999 |
|
|
$ |
19,044 |
|
|
$ |
20,508 |
|
|
|
|
|
|
|
|
|
||||||||
Diluted Earnings per Share, as reported |
$ |
0.33 |
|
|
$ |
0.43 |
|
|
$ |
0.75 |
|
|
$ |
0.81 |
|
Adjustments After Measurement Period on GES Acquisition |
|
— |
|
|
|
0.01 |
|
|
|
— |
|
|
|
0.01 |
|
Adjusted Diluted Earnings per Share |
$ |
0.33 |
|
|
$ |
0.44 |
|
|
$ |
0.75 |
|
|
$ |
0.82 |
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Twelve Months Ended |
||||||||||||
|
|
|
December 31, |
||||||||||||
|
|
|
|
|
2023 |
|
2022 |
||||||||
Operating Income |
|
|
|
|
$ |
92,769 |
|
|
$ |
71,915 |
|
||||
SERP |
|
|
|
|
|
903 |
|
|
|
(1,773 |
) |
||||
Legal Recovery |
|
|
|
|
|
(212 |
) |
|
|
— |
|
||||
Adjusted Operating Income (non-GAAP) |
|
|
|
|
$ |
93,460 |
|
|
$ |
70,142 |
|
||||
Tax Effect |
|
|
|
|
|
23,204 |
|
|
|
18,856 |
|
||||
After-tax Adjusted Operating Income |
|
|
|
|
$ |
70,256 |
|
|
$ |
51,286 |
|
||||
Average Invested Capital (1) |
|
|
|
|
$ |
770,051 |
|
|
$ |
605,772 |
|
||||
ROIC |
|
|
|
|
|
9.1 |
% |
|
|
8.5 |
% |
||||
(1) Average invested capital is computed using Share Owners’ equity plus current and non-current debt less cash and cash equivalents averaged for the last five quarters. |
|||||||||||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20240205258456/en/
Andrew D. Regrut
Vice President, Investor Relations
812.827.4151
Investor.Relations@kimballelectronics.com
Source: Kimball Electronics, Inc.
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