Key Tronic Reports 15.4% Revenue Decline and $8.6 Million Net Loss in Q2 Fiscal 2026

Key Tronic Corporation reported a significant decline in financial performance for the second quarter of fiscal year 2026, with net sales of $96.3 million, down 15.4% from $113.9 million in the same period last year. The decrease in revenue was attributed to reduced demand from longstanding customers and delays in new program launches, as well as the ongoing ramp-up of a consigned materials program that is expected to yield lower overall revenue compared to traditional turnkey programs. The company also recorded a net loss of $8.6 million, or $(0.79) per diluted share, compared to a net loss of $4.9 million, or $(0.46) per diluted share, in the prior year.

In the first half of fiscal year 2026, Key Tronic's net sales totaled $195.1 million, a 20.5% decrease from $245.4 million in the same period of fiscal year 2025. The decline was primarily driven by a $75 million reduction in demand from existing customers, offset by approximately $30 million in revenue from new and ramping programs. Gross profit margins also suffered, with gross profit at 4.5% for the six months ended December 27, 2025, down from 8.6% in the prior year, largely due to one-time expenses related to the wind-down of manufacturing operations in China and severance costs in Mexico.

Strategically, Key Tronic is winding down its manufacturing operations in China, shifting focus to sourcing and procurement activities to support its global locations. This transition is expected to save approximately $1.2 million per quarter once completed. The company accrued $1.1 million in severance-related expenses and $5 million in non-cash expenses related to the transfer and disposal of assets during this process. Additionally, restructuring efforts in Juarez, Mexico, aimed at enhancing higher volume manufacturing, have incurred $3.3 million in severance charges.

Operationally, Key Tronic's order backlog decreased to approximately $139.1 million as of December 27, 2025, down from $162.5 million a year earlier, reflecting softening demand for existing programs. The company reported cash provided by operating activities of $14 million for the six months ended December 27, 2025, compared to $11.5 million in the same period of the previous year. As of the end of the reporting period, Key Tronic had $63 million in borrowings under its asset-based revolving credit facility, with $20.9 million available for future borrowings.

Looking ahead, Key Tronic anticipates continued challenges due to market uncertainties and evolving customer demands. The company is focused on restructuring its operations to adapt to these changes, with expectations of improved gross margins as the consigned materials program ramps up. Management remains optimistic about the potential for growth as contract manufacturing returns to North America and plans to leverage its expanded facilities in Arkansas and Vietnam to meet customer needs.