KE Q2 2025: Cuts FY25 revenue outlook to $1.4B–1.44B, margins down
- Jasper Capacity Flexibility: The company reported around 65% utilization at its Jasper facility, indicating ample free capacity to accommodate additional production and capture new orders.
- Strengthened Medical Vertical: The structural consolidation of its drug delivery business with its core EMS medical vertical positions the company to benefit from growth in the expanding medical device market.
- Stable Bookings Activity: Management noted that bookings have been consistent with expectations over the past six months, supporting a steady pipeline for future revenue.
- Broad-based Softness in Key Verticals: Multiple Q&A responses highlighted that demand is weakening across automotive (especially in North America and Europe), medical (further impacted by an FDA recall and declining repair kit revenue), and industrial segments (e.g., smart metering remains in a downturn), suggesting continued pressure on revenue growth.
- Margin and Operational Headwinds: Executives noted declines in gross margins (down 160 basis points year-over-year) and a reduction in adjusted operating income, with a revised fiscal 2025 outlook reflecting lower margins and slower growth stabilization, which may continue to pressure profitability.
- Supply Chain and Tariff-related Uncertainty: The discussion on reassigning production (e.g., moving work from Tampa to Jasper and potential shifts to Thailand) and the uncertainty around tariffs—especially regarding negotiations for imported components—adds an element of cost variability and operational risk that could further affect margins.
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Guidance Drivers
Q: What drives revised FY25 guidance?
A: Management revised guidance due to broad-based softness across verticals—with automotive holding strong while medical and industrial lag—resulting in net sales of $1.4–$1.44B and margins of 3.4%–3.6%. -
Jasper Capacity
Q: What is Jasper’s current utilization?
A: They reported Jasper operating at about 65% utilization, with additional free capacity available for shifting work from other facilities. -
Inventory & Cash Flow
Q: How are inventory and cash days trending?
A: Management highlighted efficient working capital management, noting a 10-day improvement in cash conversion days as inventory levels continue to decline with lower revenues. -
Fiscal '26 Outlook Delay
Q: Is fiscal ‘26 guidance delayed?
A: They indicated that fiscal ‘26 guidance will be clarified later as more funnel data accumulates, with updates expected in the next 3–6 months. -
Bookings Performance
Q: How is bookings trending recently?
A: Over the past six months, bookings have been in line with internal expectations, supporting the current revenue outlook despite overall market softness. -
SG&A and OpEx
Q: Will low SG&A persist going forward?
A: While SG&A expenses have been trimmed to 2.9% of sales, management expects them to move upward over time as inflationary cost pressures persist, targeting around 3.5% eventually. -
Smart Meter Outlook
Q: When will smart metering bottom out?
A: The smart metering segment, which now accounts for roughly 2–3% of revenue, appears to have bottomed out, with modest positive activity expected though growth remains limited. -
Medical Vertical Changes
Q: Any changes in the medical organization?
A: They have restructured by merging their drug delivery business with the core EMS medical unit, aiming to better capture growth in high-value medical assemblies. -
China Automotive Exposure
Q: Local versus foreign exposure in China?
A: The company is focused on local OEMs in China, operating on a “China for China” model that minimizes export risk while capturing strong domestic demand. -
Romania Braking Program
Q: What about the Romania braking program?
A: The new braking platform, launched in January, currently serves primarily ICE vehicles in Europe with limited EV exposure, and early results are positive. -
Tariff Negotiation
Q: How are tariffs addressed in contracts?
A: For U.S. shipments from non‐Mexican facilities, tariff costs are negotiated with customers, leveraging established processes from past tariff experiences. -
Thailand Qualification
Q: How long for Thailand qualification?
A: Recent transfers show that qualifying production in Thailand takes about 3 months, depending on customer-specific tooling and requirements.
Research analysts covering Kimball Electronics.