Executive Summary

Q3 FY25 delivered revenue and EPS above S&P Global consensus, with net sales of $374.6m vs $338.1m est. and adjusted EPS of $0.27 vs $0.19 est.; management reiterated FY25 outlook and expects to finish at the high end for sales and adjusted operating margin. The quarter included a $24m nonrecurring consigned inventory sale that lifted revenue but pressured gross margin mix . Consensus values marked with * sourced from S&P Global.
Sequential improvement: sales +5% Q/Q on the consigned sale; gross margin rose to 7.2% (from 6.6% in Q2); adjusted operating margin improved to 4.2% (from 3.7%) as restructuring actions took hold .
Strategic pivot advanced: KE signed a lease for a new 300k sq ft Indianapolis facility to scale medical CMO; lease terms defer rent during build-out, and management highlighted expanding high-level assemblies and drug-device capabilities .
Balance sheet strength and cash discipline remained catalysts: fifth straight quarter of positive operating cash flow ($30.9m), borrowings reduced to $178.8m (down $26m Q/Q), liquidity of $304.6m; buybacks continued with $3m repurchased in Q3 and $19.3m remaining authorization .
Risks/puts: Automotive and Industrial remained down double-digit YoY; tariff uncertainty clouds near-term planning; Q3’s nonrecurring revenue lift and a higher FY25 tax-rate outlook (~30%) temper EPS flow-through despite OI leverage .

What Went Well and What Went Wrong

What Went Well

Sequential execution and margin progress: “Sales in Q3 were in line with expectations and increased sequentially. Margins improved… cash from operations was positive… borrowings now 45% lower than peak levels,” CEO noted . Gross margin reached 7.2% and adjusted OI margin 4.2% .
Medical vertical and CMO strategy advanced: Medical sales rose 2% YoY to $115m (31% mix), aided by a nonrecurring consigned sale; KE announced a new Indianapolis medical facility to scale high-level assemblies and drug-device combinations .
Working capital and deleveraging: Inventory fell to $296.6m (down $9.6m Q/Q and ~$100m YoY), CCD improved to 99 days (from 107/110), operating cash flow was $30.9m, and borrowings fell to $178.8m .

What Went Wrong

Year-over-year contraction: Total net sales declined 12% YoY to $374.6m; gross margin of 7.2% was down 70 bps YoY as the consigned sale carried low markup and lower absorption weighed on EMS factories .
End-market weakness outside Medical: Automotive (-14% YoY) and Industrial (-15% YoY, ex-AT&M) declined across regions, with EV steering demand sequentially lower and commoditization pressuring smart meters; North America auto volumes were soft and a Mexico braking program is winding down .
Higher tax rate and policy uncertainty: Q3 effective tax rate was 46.6% (mix, interest deductibility limits, withholding taxes); FY25 tax guided to ~30%. Management underscored tariff uncertainty that could force changes in delivery points, production shifts, or tariff payments .

Financial Results

Headline P&L – sequential trend (oldest → newest)

Metric	Q1 2025	Q2 2025	Q3 2025
Net Sales ($m)	$374.3	$357.4	$374.6
Gross Margin %	6.3%	6.6%	7.2%
Adjusted Operating Income %	3.4%	3.7%	4.2%
Diluted EPS (GAAP)	$0.12	$0.14	$0.15
Adjusted Diluted EPS (non-GAAP)	$0.22	$0.29	$0.27

Notes: Beginning FY25, adjusted metrics exclude stock compensation; prior periods recast .

Q3 YoY comparison

Metric	Q3 2024	Q3 2025	YoY
Net Sales ($m)	$425.0	$374.6	(12%)
Gross Margin %	7.9%	7.2%	-70 bps
Adjusted Operating Income %	4.4%	4.2%	-20 bps
Adjusted Diluted EPS ($)	$0.39	$0.27	Lower

Results vs S&P Global consensus (Q3 2025)

Metric	Actual	Consensus*	# Estimates*	Result
Revenue ($m)	$374.6	$338.1*	4*	Beat
Adjusted EPS ($)	$0.27	$0.19*	4*	Beat
EBITDA ($m)	22.8*	20.5*	—	Beat

Values marked with * retrieved from S&P Global.

Segment (vertical) net sales trend (oldest → newest)

Vertical ($m)	Q1 2025	Q2 2025	Q3 2025
Automotive	$188.4	$192.8	$173.1
Medical	$89.8	$84.0	$115.2
Industrial (ex-AT&M)	$94.0	$80.6	$86.3

Context: Q3 Medical +2% YoY aided by ~$24m nonrecurring consigned sale (≈2% of Medical vertical; ≈6% of total) .

KPIs and balance sheet (oldest → newest)

KPI	Q1 2025	Q2 2025	Q3 2025
Cash from Operations ($m)	$45.5	$29.5	$30.9
Inventory ($m)	$335.3	$306.2	$296.6
Cash Conversion Days (CCD)	108	107	99
Borrowings ($m)	$245.9	$205.0	$178.8
Open Orders ($m)	$594	$564	$642

Guidance Changes

Metric	Period	Previous Guidance	Update (Feb 4, 2025)	Current (May 6–7, 2025)	Change
Net Sales	FY2025	$1.44–$1.54B	$1.40–$1.44B	Reiterated range; expect high end	Lowered in Q2; Maintained high end in Q3
Adjusted Operating Income %	FY2025	4.0%–4.5%	3.4%–3.6%	Reiterated range; expect high end	Lowered in Q2; Maintained high end in Q3
Capital Expenditures	FY2025	$40–$50m	$40–$50m	At low end of range	Maintained; skew to low end
Effective Tax Rate	FY2025	—	Mid-20s% (full-year)	~30% (full-year)	Raised
Tampa Facility Exit Costs	FY2025	$8–$11m (initial disclosure)	$6.5–$8.5m (re-estimate)	Unchanged; proceeds expected to exceed exit costs	Reduced estimate in Q2; unchanged in Q3

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
Tariffs / Trade Policy	New tariff EOs (Feb 1) created uncertainty; options include shifting to Thailand/Jasper, changing delivery points; Mexico mostly “Mexico for Mexico”; strong customer engagement	“Tariff environment is filled with uncertainty… options include changing final delivery, shifting production, or paying tariffs; considering U.S. manufacturing alternatives; timing of EMS recovery harder to predict”	Elevated uncertainty; contingency planning ongoing
Medical CMO Strategy	Folded drug-delivery CMO into EMS; focus on HLA/drug-device combinations; respiratory care FA/HLA award slated for late FY26 launch	Leased 300k sq ft Indianapolis medical facility; rent deferred during build-out; capacity to transfer and grow; focus on higher-level assemblies, injectors, cold-chain	Acceleration, footprint expansion
Automotive Dynamics	Wind-down of Mexico braking program; China strength; new Romania braking program ramp beginning Jan	Auto down 14% YoY; China remained strong; Romania braking ramp progressed; EV steering demand sequentially lower; Mexico braking program to fall off by end of Q4	Mixed: China/Europe pockets of strength; NA softness persists
Industrial Outlook	Smart meters commoditizing; climate control/public safety weak; smart meters ~2–3% of revs historically; bottoming signs monitored	Industrial -15% YoY ex-AT&M; stability in climate control on horizon; smart meters not expected to be significant going forward	Stabilizing ex-smart meters; portfolio repositioning
Working Capital & Cash	CCD improving (117→108→107); inventory reductions and deleveraging; amended facility added Term Loan A	CCD 99; inventory -$100m YoY; 5th straight positive CFO; borrowings -$26m Q/Q; liquidity $304.6m	Continued improvement
SG&A / OpEx	Adjusted SG&A ~2.9–3.5% target; cost control underway	CFO: 3% SG&A of sales is not sustainable into FY26; investments needed for growth	Tight FY25 control; invest in FY26

Management Commentary

“We are reiterating our guidance for fiscal 2025, with the expectation that we’ll be at the top end of the range for sales and operating income. We also announced the addition of a new manufacturing facility in Indianapolis focused on the medical industry.” — Rick Phillips, CEO .
“The gross margin rate in Q3 was 7.2%… nearly half the decrease [YoY] driven by the consigned inventory sales, which incorporated only a modest markup, and the balance… from lower absorption.” — Jana Croom, CFO .
“The current tariff environment is filled with uncertainty… Options could include changing final delivery locations, shifting production… or simply paying the tariffs… This uncertainty makes the timing of recovery in our core EMS business increasingly more difficult to predict.” — Rick Phillips .

Q&A Highlights

Indianapolis facility terms and cost phasing: Rent starts after build-out; minimal expense drag during ramp; labor costs scale with revenue; transition of existing Indy programs may take 2–3 years due to FDA validations; not expecting significant proceeds from the old facility sale .
Outlook for Q4 margins: Despite tariff noise, CFO guided that Q4 OI margin should be “fairly similar to Q3,” not 2% as implied by some models; remained conservative due to macro/policy uncertainty .
Backlog/open orders inflection: After five quarters of decline, open orders upticked, driven most by Medical, then Industrial and Automotive .
Footprint optimization and margins: Tampa closure on track by end of June; expected to improve gross margin; new Indy facility transition “small impact” to GM; broader margin pressure from customer price sensitivity under tariff scenarios is being negotiated .
Capital returns: Continued buybacks; $19.3m authorization remaining as of Q3 .

Estimates Context

Q3 FY25 vs S&P Global consensus: Revenue $374.6m vs $338.1m*; adjusted EPS $0.27 vs $0.19*; EBITDA 22.8m* vs 20.5m*. Management expects FY25 revenue and adjusted OI at the high end of guidance, suggesting upward pressure on near-term estimate trajectories, with the caveat that Q3 revenue was lifted by a $24m nonrecurring consigned sale and tariff volatility remains elevated . Values marked with * retrieved from S&P Global.
Modeling nuances: CFO guided FY25 tax rate to ~30% (from mid‑20s prior), which may temper EPS revisions; Q4 OI margin expected roughly in line with Q3 provides a floor for near-term profitability assumptions .

Key Takeaways for Investors

Quality of beat: Both revenue and EPS exceeded consensus, but a $24m one-time consigned sale boosted revenue while pressuring gross margin; normalize revenue trajectory when projecting Q4 and FY26 .
Guidance credibility: Reiterating FY25 at the high end for both sales and adjusted OI amid sequential margin improvement and healthier backlog mix should support sentiment near term .
Strategic pivot gaining traction: The new 300k sq ft Indianapolis medical facility, favorable lease structure, and expanding HLA/drug-device capabilities strengthen KE’s higher-margin CMO narrative into FY26–27 .
Margin path: Restructuring benefits (e.g., Tampa closure) and mix shift can offset price/tariff pressures; management expects Q4 OI margin similar to Q3, implying resilience despite macro noise .
Cash discipline continues: CCD improved to 99; inventory down ~$100m YoY; fifth straight quarter of positive CFO; deleveraging provides flexibility for organic/inorganic investments and buybacks .
Auto/Industrial caution: Auto and Industrial remain down YoY; EV steering volumes sequentially lower; smart meters de-emphasized; watch European braking ramp and climate-control stabilization for green shoots .
Policy risk: Tariff outcomes remain the largest swing factor for volumes, pricing, and supply chain choices; KE’s diversified footprint (including Thailand and U.S.) provides levers to mitigate .

Kimball Electronics, Inc. (KE)·Q3 2025 Earnings Summary