Key Tronic Corporation Announces Results for the Second Quarter of Fiscal Year 2024
- 12% increase in revenue for the first six months of fiscal year 2024
- Gross margin improved to 8.1%
- Expansion of customer base with new programs involving security products, medical devices, and military aerospace
- Negatively impacted profitability due to increased labor costs, unfavorable foreign currency exchange rates, and higher interest rates on its line of credit
- Expectation of a severance expense of $1.0 million to $2.5 million from headcount reductions in Mexico-based operations
Insights
The reported revenue growth of 18% year-over-year for Key Tronic Corporation signifies a positive trend in the electronic manufacturing services (EMS) industry, where demand is often a reflection of broader economic health. This growth, particularly stemming from increased production in US and Vietnam-based facilities, aligns with the current reshoring trend in manufacturing, as companies seek to mitigate risks associated with global supply chains. The sale of inventory from a discontinued program also contributed to the revenue, which can be a strategic move to streamline operations and focus on more profitable segments.
However, the reported decrease in net income for the first six months compared to the previous year raises questions about the sustainability of profit margins in the face of rising labor costs and unfavorable foreign exchange rates. Investors should closely monitor Key Tronic's ability to manage these challenges, as they could affect future profitability despite top-line growth.
The increase in gross margin from 7.2% to 8.1% suggests improved efficiency and a favorable product mix. This is a critical indicator of financial health for Key Tronic, as it implies that the company is not only increasing revenue but also becoming more profitable on a per-unit basis. The operating margin decrease is relatively minor and may be offset by the gross margin improvements. However, the mention of increased labor costs, unfavorable currency exchange rates and higher interest rates on credit lines indicates pressure on the company's operating expenses, which could dampen the positive impact of gross margin improvements.
Investors should also consider the one-time severance costs due to workforce restructuring in Mexico and evaluate the projected payback period of less than six months against industry benchmarks for such cost-saving initiatives. The company's strategic focus on higher-volume manufacturing in Juarez and shifting lower-volume, higher service level products to other sites could enhance long-term competitiveness but may involve short-term financial strain.
The context of Key Tronic's business performance must be considered within the broader macroeconomic environment. The company's mention of unfavorable foreign currency exchange rates and wage inflation, especially along the US-Mexico border, reflects current economic trends of currency volatility and labor market tightness. These factors are particularly relevant for companies with cross-border operations and can have significant implications for cost structures and pricing strategies.
Additionally, Key Tronic's expectation of revenue between $135 million and $145 million for the next quarter, coupled with the planned severance expense, indicates a cautious outlook that may reflect broader economic uncertainties. The effective tax rate assumption of 20% for the coming quarter will also play a role in the net income projections and should be noted by stakeholders as a potential variable in the company's financial planning.
Continued Growth in US-based Production; Improved Gross Margins; New Program Wins
SPOKANE VALLEY, Wash., Feb. 06, 2024 (GLOBE NEWSWIRE) -- Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended December 30, 2023.
For the second quarter of fiscal year 2024, Key Tronic reported total revenue of
For the second quarter of fiscal year 2024, the Company’s gross margin was
For the second quarter of fiscal year 2024, net income was
“We’re pleased with the successful ramp of new programs in the second quarter of fiscal 2024, driven by increased utilization of our US and Vietnam facilities,” said Craig Gates, President and Chief Executive Officer. “During the quarter, we continued to expand our customer base, winning new programs involving security products, medical devices and military aerospace. We also continued to make gradual improvements in our gross margins and continued to make significant reductions to inventory, as well as reducing our accounts payable, debt and other liabilities.”
“While we continue to see the favorable trend of contract manufacturing returning to North America, the strength of the Mexican peso and continued wage increases in Mexican wages, particularly along the US-Mexico border, have created a shift in the way we allocate our production across our US and Juarez locations. In order to remain competitive, our Juarez site will be restructured to focus on higher-volume manufacturing, while lower-volume products with higher service level requirements will migrate to our other sites.
Accordingly, we are currently reducing our workforce in Mexico and will incur
The financial data presented for the second quarter of fiscal year 2024 should be considered preliminary and could be subject to change, as the Company’s independent auditor has not completed their review procedures.
Business Outlook
For the third quarter of fiscal 2024, Key Tronic expects to report revenue in the range of
Conference Call
Keytronic will host a conference call to discuss its financial results at 2:00 PM Pacific (5:00 PM Eastern) today. A broadcast of the conference call will be available at www.keytronic.com under “Investor Relations” or by calling 877-400-0505 or +1-323-701-0225 (Access Code: 5587222). A replay will be available at www.keytronic.com under “Investor Relations”.
About Key Tronic
Keytronic is a leading contract manufacturer offering value-added design and manufacturing services from its facilities in the United States, Mexico, China and Vietnam. The Company provides its customers with full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, and worldwide distribution. Its customers include some of the world’s leading original equipment manufacturers. For more information about Keytronic visit: www.keytronic.com
Forward-Looking Statements
Some of the statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to those including such words as aims, anticipates, believes, continues, estimates, expects, hopes, intends, plans, predicts, projects, targets, or will, similar verbs, or nouns corresponding to such verbs, which may be forward looking. Forward-looking statements also include other passages that are relevant to expected future events, performances, and actions or that can only be fully evaluated by events that will occur in the future. Forward-looking statements in this release include, without limitation, the Company’s statements regarding its expectations with respect to financial conditions and results, including revenue and earnings, demand for certain products and the effectiveness of some of its programs, business from customers and programs, and impacts from operational streamlining. There are many factors, risks and uncertainties that could cause actual results to differ materially from those predicted or projected in forward-looking statements, including but not limited to: the future of the global economic environment and its impact on our customers and suppliers; the availability of components from the supply chain; the availability of a healthy workforce; the accuracy of suppliers’ and customers’ forecasts; development and success of customers’ programs and products; timing and effectiveness of ramping of new programs; success of new-product introductions; the risk of legal proceedings or governmental investigations relating to the subject of the internal investigation by the Company’s Audit Committee and related or other unrelated matters; acquisitions or divestitures of operations or facilities; technology advances; changes in pricing policies by the Company, its competitors, customers or suppliers; impact of new governmental legislation and regulation, including tax reform, tariffs and related activities, such trade negotiations and other risks; and other factors, risks, and uncertainties detailed from time to time in the Company’s SEC filings.
| KEY TRONIC CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) | ||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||
| December 30, 2023 | December 31, 2022 | December 30, 2023 | December 31, 2022 | |||||||||||
| Net sales | $ | 145,417 | $ | 123,708 | $ | 293,180 | $ | 260,971 | ||||||
| Cost of sales | 133,654 | 114,788 | 270,555 | 241,672 | ||||||||||
| Gross profit | 11,763 | 8,920 | 22,625 | 19,299 | ||||||||||
| Research, development and engineering expenses | 1,758 | 2,287 | 3,999 | 4,583 | ||||||||||
| Selling, general and administrative expenses | 6,057 | 5,735 | 11,841 | 11,391 | ||||||||||
| Gain on insurance proceeds, net of losses | — | (2,710 | ) | (431 | ) | (3,644 | ) | |||||||
| Total operating expenses | 7,815 | 5,312 | 15,409 | 12,330 | ||||||||||
| Operating income | 3,948 | 3,608 | 7,216 | 6,969 | ||||||||||
| Interest expense, net | 2,961 | 2,507 | 5,972 | 4,394 | ||||||||||
| Income before income taxes | 987 | 1,101 | 1,244 | 2,575 | ||||||||||
| Income tax (benefit) provision | (97 | ) | 134 | (175 | ) | 456 | ||||||||
| Net income | $ | 1,084 | $ | 967 | $ | 1,419 | $ | 2,119 | ||||||
| Net income per share — Basic | $ | 0.10 | $ | 0.09 | $ | 0.13 | $ | 0.20 | ||||||
| Weighted average shares outstanding — Basic | 10,762 | 10,762 | 10,762 | 10,762 | ||||||||||
| Net income per share — Diluted | $ | 0.10 | $ | 0.09 | $ | 0.13 | $ | 0.20 | ||||||
| Weighted average shares outstanding — Diluted | 10,889 | 10,832 | 10,889 | 10,832 | ||||||||||
| KEY TRONIC CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | ||||||
| December 30, 2023 | July 1, 2023 | |||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | 2,953 | 3,603 | ||||
| Trade receivables, net of allowance for doubtful accounts of | 134,892 | 150,600 | ||||
| Contract assets | 27,770 | 29,925 | ||||
| Inventories, net | 124,054 | 137,911 | ||||
| Other | 22,612 | 27,510 | ||||
| Total current assets | 312,281 | 349,549 | ||||
| Property, plant and equipment, net | 28,935 | 28,870 | ||||
| Operating lease right-of-use assets, net | 18,104 | 16,202 | ||||
| Other assets: | ||||||
| Deferred income tax asset | 13,161 | 12,254 | ||||
| Other | 6,243 | 11,397 | ||||
| Total other assets | 19,404 | 23,651 | ||||
| Total assets | 378,724 | 418,272 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable | 91,358 | 115,899 | ||||
| Accrued compensation and vacation | 5,677 | 13,351 | ||||
| Current portion of debt, net | 5,610 | 7,849 | ||||
| Other | 15,721 | 14,867 | ||||
| Total current liabilities | 118,366 | 151,966 | ||||
| Long-term liabilities: | ||||||
| Term loans | 6,465 | 6,726 | ||||
| Revolving loan | 108,429 | 114,805 | ||||
| Operating lease liabilities | 12,380 | 10,317 | ||||
| Deferred income tax liability | 22 | 274 | ||||
| Other long-term obligations | 627 | 3,567 | ||||
| Total long-term liabilities | 127,923 | 135,689 | ||||
| Total liabilities | 246,289 | 287,655 | ||||
| Shareholders’ equity: | ||||||
| Common stock, no par value—shares authorized 25,000; issued and outstanding 10,762 and 10,762 shares, respectively | 47,839 | 47,728 | ||||
| Retained earnings | 84,405 | 82,986 | ||||
| Accumulated other comprehensive income (loss) | 191 | (97 | ) | |||
| Total shareholders’ equity | 132,435 | 130,617 | ||||
| Total liabilities and shareholders’ equity | 378,724 | 418,272 | ||||
| CONTACTS: | Brett Larsen | Michael Newman | ||
| Chief Financial Officer | Investor Relations | |||
| Key Tronic Corporation | StreetConnect | |||
| (509) 927-5500 | (206) 729-3625 |
FAQ
What was Key Tronic Corporation's (KTCC) total revenue for the second quarter of fiscal year 2024?
What was the increase in revenue for the first six months of fiscal year 2024 compared to the same period in fiscal year 2023?
What was Key Tronic Corporation's (KTCC) gross margin for the second quarter of fiscal year 2024?
What factors contributed to the increase in gross margin for the second quarter of fiscal year 2024?
What is the expected range of revenue for the third quarter of fiscal 2024?
What is the expected severance expense for the third quarter of fiscal 2024?
