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KE

Kimball Electronics, Inc. (KE)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 delivered in-line results amid sustained demand weakness: revenue $357.4M, gross margin 6.6%, adjusted operating margin 3.7%, adjusted EPS $0.29; sequential revenue fell ~5% vs Q1 and YoY revenue declined 15% including AT&M divestiture impact .
  • Guidance cut: FY2025 revenue to $1.40–$1.44B (from $1.44–$1.54B) and adjusted operating margin to 3.4%–3.6% (from 4.0%–4.5%); capex unchanged at $40–$50M. Exit cost outlook for the Tampa facility lowered to $6.5–$8.5M, with proceeds expected to exceed costs .
  • Balance sheet progress continues: fourth straight quarter of positive operating cash flow ($29.5M), inventory reduced to $306.2M, borrowings cut to $205M, cash $53.9M; added a 5-year $100M Term Loan A to enhance liquidity; repurchased 160,000 shares for $3.0M .
  • Automotive resilient on China strength (record monthly production), offset by North America softness and European challenges; medical declined on end-of-life and adjacent FDA recall effects; industrial down on smart-meter commoditization. New braking program launched in Romania in January and medical HLA program targeted for late FY2026 .
  • Wall Street consensus via S&P Global was unavailable at the time of writing due to data access limitations; management characterized results as “in line with expectations” .

What Went Well and What Went Wrong

What Went Well

  • Continued cash generation and deleveraging: $29.5M operating cash flow, borrowings down $41M sequentially and $90M YTD; inventory down $29M QoQ and $149M YoY. “Our improved balance sheet provides ample liquidity…” .
  • Strategic repositioning progressing: AT&M divestiture closed, Tampa closure underway, medical CMO consolidated with EMS; added $100M Term Loan A to enhance domestic liquidity for growth investments .
  • Automotive China strength: “monthly production rates reaching record high levels in support of our largest customer,” partially offsetting North America softness; new braking program shipped first units from Romania in January .

What Went Wrong

  • Guidance cut reflects deeper, longer demand weakness: FY2025 revenue and adjusted operating margin reduced; management expects softness likely to continue through calendar 2025 .
  • Margin compression from lower absorption: gross margin 6.6% (down 160 bps YoY), adjusted operating margin 3.7% (down 80 bps YoY) due to volume declines across verticals .
  • Medical and Industrial headwinds: medical down 22% on end-of-life programs and adjacent impacts from an FDA recall; industrial down 20% on smart metering commoditization and climate/public safety softness .

Financial Results

MetricQ2 FY2024 (Dec 31, 2023)Q4 FY2024 (Jun 30, 2024)Q1 FY2025 (Sep 30, 2024)Q2 FY2025 (Dec 31, 2024)
Revenue ($USD Millions)$421.2 $430.2 $374.3 $357.4
Gross Margin %8.2% 8.5% 6.3% 6.6%
Operating Margin %3.9% 4.6% 2.4% 2.3%
Adjusted Operating Margin %4.5% 4.9% 3.4% 3.7%
Diluted EPS ($USD)$0.33 $0.30 $0.12 $0.14
Adjusted Diluted EPS ($USD)$0.39 $0.33 $0.22 $0.29
Cash & Balance MetricsQ4 FY2024 (Jun 30, 2024)Q1 FY2025 (Sep 30, 2024)Q2 FY2025 (Dec 31, 2024)
Cash from Operations ($USD Millions)$48.5 $45.5 $29.5
Inventory ($USD Millions)$338.1 $335.3 $306.2
Borrowings ($USD Millions)$294.8 $245.9 $205.0
Cash & Equivalents ($USD Millions)$78.0 / $77.97 $76.6 $53.9

Segment Net Sales (excluding AT&M divestiture)

SegmentQ1 FY2025 ($M)Q2 FY2025 ($M)
Automotive$188.4; 50% of total $192.8; 54% of total
Medical$89.8; 24% $84.0; 23%
Industrial ex AT&M$94.0; 25% $80.6; 23%
Total Net Sales$374.3 $357.4

KPIs

KPIQ4 FY2024Q1 FY2025Q2 FY2025
Cash Conversion Days (CCD)100 108 107
Open Orders ($M)$714 $594 $564

Notes:

  • Non-GAAP methodology changed in FY2025 to exclude stock compensation from adjusted metrics; prior periods recast .
  • Q2 restructuring expense $4.671M pre-tax; after-tax added $0.14 to EPS; adjusted EPS $0.29 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($USD)FY2025$1.44–$1.54B $1.40–$1.44B Lowered
Adjusted Operating Income %FY20254.0%–4.5% 3.4%–3.6% Lowered
Capital Expenditures ($USD)FY2025$40–$50M $40–$50M Maintained
Tampa Exit Costs ($USD)FY2025$8–$11M $6.5–$8.5M Lowered
Effective Tax RateFY2025Mid-20s (normalized going forward) Mid-20s (normalized for FY) Maintained
SG&A as % of SalesFY2025Not quantified priorTarget ~3.5% (may fluctuate) New benchmark

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY2024, Q1 FY2025)Current Period (Q2 FY2025)Trend
Strategic restructuring (AT&M divestiture; footprint)AT&M divestiture completed; Tampa closure announced for FY2026; refocus on EMS/CMO Reiterated Tampa closure plan; exit costs refined; reallocated Tampa work to Mexico/Jasper Execution progressing
Medical CMO and HLA programSole supplier selection for respiratory care final assembly/HLA; launch in FY2026 Reinforced CMO capabilities (plastics, device assembly, cold chain) and FY2026 HLA timeline Building pipeline; long-dated
Automotive China strength vs NA/EU softnessNA/EU softness; Romania braking program planned ramp in Q3 FY2025 China at record monthly production; Romania shipped first units in Jan; NA/EU remain challenged Mixed; China up, NA/EU down
Tariffs and supply chain optionalityNot a focus in Q4/Q1Addressed potential tariffs on China/Mexico/Canada; options include delivery point changes, shifting to Thailand, renegotiation New risk factor
Working capital disciplineQ4 operating cash flow $48.5M; Q1 $45.5M; CCD 100→108 Q2 operating cash $29.5M; CCD 107; inventory down further Continued improvement
Bookings pipeline disclosureNot disclosed previouslyManagement committed to add funnel/win-rate disclosure in coming quarters Transparency improving
Smart metering commoditizationCited as pressure in Industrial Bottoming; remains competitive; 2–3% of revenue historically Stabilizing at lower level

Management Commentary

  • CEO: “The results for the second quarter were in line with expectations as we continue to navigate a sustained period of declining customer demand… Our improved balance sheet provides ample liquidity… The Company is being strategically repositioned for a return to growth…” .
  • CFO: “Adjusted operating income for the second quarter was $13.3 million or 3.7% of net sales… effective tax rate was 1.2%… We expect a tax rate in the mid-20s for the full fiscal year” .
  • CEO on tariffs: “We are partnering with our customers to understand the impacts… options: change final delivery, shift production, or pay the tariffs… Mexico exports ~25–30% into the U.S.” .
  • COO on Romania braking program: “It launched in January… for the European market… mostly ICE vehicles initially” .

Q&A Highlights

  • Tariffs: Even at 25%, Mexico often remains cost-effective; Thailand relocation can eliminate tariffs from Mexico/China; negotiations expected for U.S. components in Jasper/Indianapolis/Tampa .
  • Working capital trajectory: Focus shifting to days vs dollars; management aims to push CCD below 100; internal data suggests inventory reduction continues over 6–12 months .
  • Bookings and funnel disclosure: Management to provide pipeline/win-rate metrics in Q3/Q4 alongside FY2026 guidance to aid modeling .
  • Utilization and capacity: Jasper utilization ~65%; capacity available; Tampa transfer underway; inquiries to shift some competitor-run Mexico work to Jasper .
  • Segment tone: Autos “holding in” on Asia strength; medical/industrial still searching for footing; smart metering likely at bottom but competitive .

Estimates Context

  • Wall Street consensus (EPS/revenue) via S&P Global was unavailable at the time of writing due to data access limits. Management characterized Q2 results as “in line with expectations.” If S&P data becomes available, update tables to reflect vs-consensus comparisons and highlight beats/misses .

Key Takeaways for Investors

  • Guidance reset is the key stock narrative: lower revenue and margin outlook signal a longer recovery; expect estimate revisions down and near-term multiple pressure until demand stabilizes .
  • Balance sheet strength and liquidity are meaningful offsets: positive cash generation, reduced borrowings, $100M TLA add optionality for organic/inorganic investments; defensiveness supports downside protection .
  • Automotive exposure is bifurcated: China strength and new Romania program are catalysts; watch North America inventory normalization and European demand softness for timing of recovery .
  • Medical CMO strategy is medium-term: HLA sole-supplier award and device capabilities (plastics, cold chain) underpin FY2026 growth; near-term still weighed by end-of-life and recall adjacencies .
  • Tariffs introduce execution risk and potential mix shifts: management has levers (Thailand, delivery-point changes, negotiations); monitor policy developments and customer behavior .
  • Operational discipline continues: SG&A targeted ~3.5% of sales; CCD improvement and inventory reduction are ongoing; expect restructuring to aid margins in 2H FY2025 .
  • Capital return remains active: ongoing repurchases ($3.0M in Q2; program increased by $20M in Nov) alongside deleveraging—signals confidence and valuation-aware allocation .