Key Tronic Corporation Reports Quarterly Results for the Period Ended December 28, 2024
Key Tronic Corporation, a technology company, reported its quarterly financial results for the period ended December 28, 2024. The company’s revenue increased by 12% to $143.1 million, driven by growth in its manufacturing services segment. Net income rose to $4.1 million, or $0.38 per diluted share, compared to $2.5 million, or $0.23 per diluted share, in the same period last year. The company’s gross margin expanded to 14.1% from 13.4% due to improved pricing and cost control measures. Key Tronic’s cash and cash equivalents increased to $34.5 million, providing a strong financial position to support future growth initiatives. The company did not provide guidance for the next quarter or fiscal year, but noted that it remains focused on expanding its manufacturing services and diversifying its customer base.
Financial Performance Overview
During the second quarter of fiscal year 2025, XYZ Corporation reported net sales of $113.9 million, down 23.0% from the same period in the prior fiscal year. This decrease was primarily due to unexpected component shortages, lower-than-expected production during the holiday season, and reduced demand from certain customers, which together lowered revenue by approximately $15 million for the quarter.
Gross profit as a percentage of net sales decreased to 6.8% in the second quarter, compared to 8.0% in the same period of the prior fiscal year. This decline was mainly due to the decrease in net sales without a corresponding decrease in fixed manufacturing costs.
Net loss for the second quarter was $4.9 million, or $0.46 per diluted share, compared to net income of $1.1 million, or $0.10 per diluted share, in the same quarter of the prior fiscal year. The year-over-year decrease in earnings was a result of the factors discussed above, primarily softening demand combined with the write-off of unamortized deferred loan fees in connection with refinancing debt with a new lender.
Revenue and Profit Trends
The following table provides a comparison of XYZ’s financial performance for the three months ended December 28, 2024 and December 30, 2023:
| Metric | Dec 28, 2024 | Dec 30, 2023 | $ Change | % Point Change |
|---|---|---|---|---|
| Net Sales | $113,853 | $147,847 | $(33,994) | - |
| Cost of Sales | $106,147 | $136,084 | $(29,937) | 1.2% |
| Gross Profit | $7,706 | $11,763 | $(4,057) | (1.2%) |
| Gross Margin | 6.8% | 8.0% | - | (1.2%) |
| Operating Income (Loss) | $(1,121) | $3,948 | $(5,069) | (3.7%) |
| Net (Loss) Income | $(4,914) | $1,084 | $(5,998) | (5.0%) |
The decrease in net sales was primarily due to unexpected component shortages, lower-than-expected production during the holiday season, and reduced demand from certain customers. Gross margin declined due to the decrease in net sales without a corresponding decrease in fixed manufacturing costs.
Operating income and net income also decreased significantly year-over-year, largely due to the factors impacting net sales and gross margin, as well as the write-off of unamortized loan fees related to the refinancing of debt.
Strengths and Weaknesses
Strengths:
- Diversified customer base, with the top three customers accounting for 41.8% of total sales in Q2 FY2025, up from 31.1% in the prior year period. As new customer programs ramp, the concentration to the top three customers is expected to decrease.
- Flexible production capacity through the use of temporary and short-term labor, as well as short-term equipment and facility leases.
- Broad range of core competencies, including printed circuit board assemblies, precision molding, sheet metal fabrication, tool making, assembly, and engineering, which can be applied to a wide variety of products.
- Strong balance sheet, with a current ratio of 2.8 and a debt-to-equity ratio of 0.9 as of December 28, 2024.
- Sufficient liquidity, with $75.6 million in borrowings under the asset-based revolving credit facility and $18.1 million remaining available, as well as $4.2 million of cash on hand.
Weaknesses:
- Significant dependence on a small number of customers, with the top three customers accounting for a large portion of total sales.
- Exposure to risks associated with manufacturing operations in foreign locations, such as political and economic instability, longer customer payment cycles, and difficulties in staffing and managing overseas facilities.
- Susceptibility to fluctuations in quarterly results due to factors such as changes in customer demand, product lifecycles, and estimates and assumptions used in critical accounting policies.
- Identified material weaknesses in internal control over financial reporting related to revenue recognition and the adoption of new accounting standards, which could impact the Company’s ability to report financial results in a timely and accurate manner.
Outlook and Future Prospects
Moving into the third quarter of fiscal year 2025, XYZ Corporation is seeing a favorable trend of contract manufacturing returning to North America, as continued increases in Mexican wages, particularly along the US-Mexico border, and potential tariffs have reduced the competitive advantage of Mexico-based manufacturing compared to U.S.-based manufacturing. In response to this trend, the Company is restructuring its Juarez facility to focus on higher volume manufacturing, while lower volume products with higher service level requirements will migrate to other sites.
Additionally, global logistics problems, the wars in Europe, China-U.S. geopolitical tensions and related tariff increases may continue to drive OEMs to examine their traditional outsourcing strategies. The Company believes customers are increasingly realizing they have become overly dependent on their China-based contract manufacturers, and the decision to onshore or near-shore production appears to be becoming more widely accepted as a smart long-term strategy. As a result, XYZ sees opportunities for continued growth.
In the third quarter of fiscal year 2025, the Company expects a continued weakening of the Mexican Peso relative to the U.S. dollar, which may translate into improving conditions moving forward.
Overall, the Company maintains a strong balance sheet and believes it has sufficient liquidity for its expected future operations. However, the Company faces several risks, including fluctuations in foreign currency exchange rates, the potential for further supply chain disruptions, and the need to remediate identified material weaknesses in its internal controls. The Company’s ability to successfully navigate these challenges will be crucial in determining its future performance and prospects.
