Sign in

You're signed outSign in or to get full access.

KE

Kimball Electronics, Inc. (KE)·Q1 2026 Earnings Summary

Executive Summary

  • Q1 FY2026 delivered solid execution: Revenue $365.6M, GAAP diluted EPS $0.40, Adjusted EPS $0.49, gross margin 7.9%, and operating margin 4.0% with continued working capital improvement (CCD 83 days) and seventh consecutive quarter of positive operating cash flow .
  • Results beat Wall Street consensus on both revenue and EPS; Revenue: $365.6M vs $338.4M estimate; EPS: $0.49 vs $0.27 estimate. Adjusted EPS more than doubled YoY; management reiterated FY2026 guidance (net sales $1.35–$1.45B; adjusted OI 4.0–4.25%; Capex $50–$60M). Values retrieved from S&P Global.* .
  • Medical vertical strength (+13% YoY to $101.6M) offset weakness in Automotive (-10% YoY) and modest Industrial softness (-1% YoY); mix shift and restructuring (including Tampa closure) aided margin expansion .
  • Management highlighted tariff pass-through strategy, additional FY2026 restructuring if needed, and a focused CMO strategy—including new Indianapolis facility and potential tuck-in M&A—to drive a return to profitable top-line growth next year and margin accretion longer-term .
  • Near-term stock reaction catalysts: sustained margin improvement, accelerating medical program ramps, disciplined cap allocation with debt reduction, and guidance reiteration; watch tariffs/HVAC softness and Automotive demand as potential headwinds .

What Went Well and What Went Wrong

What Went Well

  • Medical vertical grew 13% YoY to $101.6M (28% of sales), diversified across Europe/Asia and North America; new Indianapolis medical facility expands capacity for finished devices and drug-delivery instruments .
  • Margins expanded YoY: gross margin 7.9% (+160 bps YoY) and adjusted operating margin 4.8% (+140 bps YoY), driven by product mix, Tampa closure, and restructuring benefits .
  • Cash discipline: positive operating cash flow ($8.1M), CCD improved to 83 (lowest in 3 years), and debt fell to $138.0M (down $9.5M QoQ; down ~$108M YoY) .

Quote: “We remain confident this powerful combination will result in a return to profitable topline growth next year, and we are reiterating our guidance for fiscal 2026.” — CEO Rick Phillips .

What Went Wrong

  • Top-line down 2% YoY; Automotive (-10% YoY) pressured by North America braking program transfer and Asia softness, partly offset by a Romania ramp; Industrial down 1% YoY with HVAC weakness amid slowing housing .
  • Management expects FY2026 adjusted OI to be strongest in Q1, with tariffs and U.S. housing softness pressuring margins later in year; SG&A expected to rise as % of sales to support growth (tech/business dev) .
  • Tariff environment remains fluid; while KE intends to pass through costs, incomplete recovery could adversely impact operating results and cash flows; additional restructuring may be incurred in FY2026 .

Financial Results

Quarterly Performance vs Prior Periods

MetricQ3 2025 (oldest)Q4 2025Q1 2026 (newest)
Revenue ($USD Millions)$374.6 $380.5 $365.6
GAAP Diluted EPS ($)$0.15 $0.26 $0.40
Adjusted Diluted EPS ($)$0.27 $0.34 $0.49
Gross Margin (%)7.2% 8.0% 7.9%
Operating Income Margin (%)3.1% 4.3% 4.0%
Cash from Operations ($USD Millions)$30.9 $78.1 $8.1

Q1 FY2026 vs Prior Year, Prior Quarter, and Estimates

MetricQ1 2026 Actualvs Q4 2025 (q/q)vs Q1 2025 (y/y)ConsensusSurprise
Revenue ($USD Millions)$365.6 -$14.9 (−3.9%) −$8.7 (−2.3%) $338.4*+$27.2M (Beat)*
Adjusted Diluted EPS ($)$0.49 +$0.15 (+44.1%) +$0.27 (+122.7%) $0.27*+$0.22 (Beat)*

Values retrieved from S&P Global.*

Segment Breakdown

VerticalQ3 2025 ($MM / % of sales / YoY)Q4 2025 ($MM / % / YoY)Q1 2026 ($MM / % / YoY)
Automotive$173.1 / 46% / −14% $183.7 / 48% / −13% $164.4 / 45% / −10%
Medical$115.2 / 31% / +2% $107.2 / 28% / +5% $101.6 / 28% / +13%
Industrial (ex-AT&M)$86.3 / 23% / −15% $89.6 / 24% / −12% $99.6 / 27% / −1%
Total Net Sales$374.6 / 100% / −12% $380.5 / 100% / −12% $365.6 / 100% / −2%

Note: Starting Q1 FY2026, certain commercial transportation customers moved from Automotive to Industrial; prior periods recast accordingly .

KPIs

KPIQ3 2025 (oldest)Q4 2025Q1 2026 (newest)
Cash Conversion Days (CCD)99 85 83
Open Orders ($USD Millions)$642 $702 (revised to $642 at 6/30) $593
Borrowings (Debt) ($USD Millions)$178.8 $147.5 $138.0
Inventory ($USD Millions)$296.6 $273.5 $272.7
Capital Expenditures ($USD Millions)$4.0 $9.6 $10.6
Share Repurchases$3.0M / 175k sh $3.0M / 162k sh $1.5M / 49k sh

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY2026$1.35–$1.45B $1.35–$1.45B Maintained
Adjusted Operating Income MarginFY20264.0%–4.25% 4.0%–4.25% Maintained
Capital ExpendituresFY2026$50–$60M $50–$60M Maintained
Effective Tax RateFY2026Low-30s% Low-30s% Maintained
SG&A (qualitative)FY2026~3.0% in FY2025; expected increase in FY2026 Increase as % of sales to support growth Raised (qualitative)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY2025)Previous Mentions (Q4 FY2025)Current Period (Q1 FY2026)Trend
Medical CMO strategy & capacityAnnounced new Indianapolis facility; added medical customers; HLAs/finished devices margin accretive Sole-source final assembly for key respiratory customer; capacity scale to “hundreds of millions” potential Medical up 13% YoY; Indy facility build-out; exploring tuck-in M&A to augment CMO Improving
Tariffs & pass-throughIndustry-wide constraints easing; working capital initiatives rolling out Pass-through mindset; global network flexibility to mitigate tariff impacts Expect to recover tariff costs via customer pass-through; may incur additional restructuring Mixed/Manageable
Automotive demandAutomotive −14% YoY; program cancellations and demand reductions −13% YoY; braking program loss offset by Romania ramp; EV steering softness −10% YoY; North America and Asia weaker; Europe ramp offset; longer-term content growth (steer/brake-by-wire) Soft
Industrial/HVAC−15% YoY; open orders down due to cancellations −12% YoY; climate control early stability −1% YoY; HVAC softness in North America; Asia strength Stabilizing
Working capital/CCDCCD 99; initiatives to move toward ~75 days CCD 85; lowest in 3 years CCD 83; lowest in 3 years; CFO targets “low 80s,” ideally “7x” Improving
Tax & OBBAN/AFY2026 tax rate low-30s% Q1 effective tax 8.3% (OBBA benefit); FY2026 low-30s% Improving near-term; normalizing FY

Management Commentary

  • Strategic focus: “Our solid footing as an EMS provider and our capabilities as a medical CMO are unique... we look to expand upon them through organic, and possibly inorganic, channels.” — CEO Rick Phillips .
  • Margin outlook: “We expect Q1 to be our strongest quarter from an adjusted operating income perspective as demand and costs related to tariffs and softening in the U.S. housing market pressure margins in North America.” — CFO Jana Croom .
  • Capital allocation: “We have plenty of dry powder for an inorganic opportunity... very disciplined... would not want to issue equity unless absolutely compelling.” — CFO Jana Croom .
  • Growth pathway: “We look forward to a return to growth in FY2027 centered on the medical space... improve margins over time.” — CEO Rick Phillips .

Q&A Highlights

  • Working capital and CCD: CFO targets stabilization in low-80s CCD, ideally “with a 7 in front of it,” as the business returns to growth and inventory builds for program launches .
  • EBITDA/Adjusted OI trajectory: Management does not expect deterioration in FY2027; aiming for consistent adjusted OI margin of ~5% with better absorption and additional restructuring in FY2026 .
  • Medical M&A: Focus exclusively on medical CMO; potential additions in technologies, customers, and geographies; disciplined approach to valuation and financing (prefer debt over equity) .
  • Industrial outlook: Industrial softer than previously anticipated for FY2026 due to HVAC; Automotive roughly as expected; Medical stronger than anticipated .
  • Tax benefits: OBBA driving Q1 effective tax benefit; exploring R&D credits and interest deductions on domestic income .

Estimates Context

PeriodRevenue Consensus ($MM)*Revenue Actual ($MM)SurpriseEPS Consensus ($)*Adjusted EPS Actual ($)Surprise
Q3 2025338.1*374.6 +$36.5 (Beat)*0.19*0.27 +$0.08 (Beat)*
Q4 2025333.2*380.5 +$47.3 (Beat)*0.185*0.34 +$0.155 (Beat)*
Q1 2026338.4*365.6 +$27.2 (Beat)*0.27*0.49 +$0.22 (Beat)*

Values retrieved from S&P Global.*

Implications: Consensus underappreciated margin mix shift and medical ramp; models should reflect higher adj. EPS run-rate and sustained revenue outperformance despite vertical headwinds .

Key Takeaways for Investors

  • Mix-driven margin expansion with medical growth and restructuring benefits supports higher adj. EPS trajectory; Q1 adj. OI margin 4.8% with path to ~5% longer-term .
  • Guidance reiteration and disciplined capital allocation (debt reduction, targeted buybacks) reduce downside risk; Capex weighted to medical CMO capacity (Indy) .
  • Tariff pass-through strategy and global footprint flexibility help mitigate macro/tariff uncertainty; monitor ability to fully recover costs to protect margins .
  • Automotive remains pressured near-term, but electronic content gains (steer/brake-by-wire) and Romania ramp provide medium-term recovery vectors .
  • Industrial outlook softer on HVAC, but Asia strength and working capital discipline (CCD 83) improve resilience and cash generation .
  • Expect SG&A to rise near-term to support growth (tech, BD), with margin accretion as volumes scale; models should incorporate higher SG&A rate in FY2026 .
  • Medical program ramps across geographies plus potential tuck-in M&A are key catalysts for topline reacceleration and margin accretion into FY2027 .

Notes on non-GAAP: Adjusted EPS ($0.49) excludes stock comp, restructuring, and asset impairment/gain; reconciliations provided in Q1 press release . Constant currency growth was −3% vs reported −2% (1% FX tailwind) .