Key Tronic Reports 20% Decline in Q3 Revenue, Anticipates Future Growth

Key Tronic Corporation reported a significant decline in financial performance for the third quarter of fiscal year 2026, with net sales of $89.6 million, down 20% from $112.0 million in the same period last year. The decrease was attributed to reduced demand from a legacy customer, the transition of an end-of-life program, and operational disruptions caused by Winter Storm Fern, which temporarily closed facilities. The company also faced delays in customer design and component allocations. Despite these challenges, Key Tronic anticipates revenue growth in the upcoming quarter due to increased demand from existing customers and new program launches.

The company's gross profit for the third quarter was $7.2 million, yielding a gross margin of 8.0%, an improvement from 7.7% in the prior year. This increase reflects operational efficiencies gained from cost-cutting initiatives. However, the year-to-date gross profit margin decreased to 5.6% from 8.3% in the previous year, primarily due to one-time expenses related to the wind-down of manufacturing operations in China and severance costs in Mexico. The net loss for the quarter was $2.6 million, or $(0.24) per diluted share, compared to a net loss of $0.6 million, or $(0.06) per diluted share, in the same quarter last year.

Key Tronic's operational strategy includes a shift away from manufacturing in China, focusing instead on sourcing and procurement to support its remaining global operations. This transition is expected to be completed by the end of the fiscal year and is projected to save approximately $1.2 million per quarter. The company has also reported an increase in its order backlog, which rose to approximately $159.5 million, up from $138.1 million a year earlier, indicating strengthening demand for existing programs.

In terms of financial health, Key Tronic reported total assets of $322.9 million and total liabilities of $219.8 million as of March 28, 2026. The company has maintained a current ratio of 2.1 and a debt-to-equity ratio of 1.0, suggesting a stable liquidity position. Cash provided by operating activities for the nine months ended March 28, 2026, was $10.0 million, consistent with the previous year. The company has $66.3 million in borrowings under its asset-based revolving credit facility, with $20.2 million available for future borrowings.

Looking ahead, Key Tronic expects to benefit from a favorable trend of contract manufacturing returning to North America, alongside ongoing restructuring efforts in its Juarez operations to focus on higher volume manufacturing. The company remains cautious about potential market uncertainties, including geopolitical tensions and tariff implications, but is optimistic about revenue and margin growth as it adapts to changing market conditions.