Key Tronic Reports 23% Decline in Net Sales for Q2 Fiscal Year 2025

Key Tronic Corporation reported a significant decline in financial performance for the second quarter of fiscal year 2025, with net sales of $113.9 million, a decrease of 23% from $147.8 million in the same period of the previous year. The company attributed this decline to unexpected component shortages, lower production during the holiday season, and reduced demand from certain customers, which collectively lowered revenue by approximately $15 million. Gross profit also fell to $7.7 million, representing a gross margin of 6.8%, down from 8.0% in the prior year, primarily due to fixed manufacturing costs not decreasing in line with the drop in sales.

In terms of operational changes, Key Tronic has restructured its Juarez facility to focus on higher volume manufacturing, which has led to a significant reduction in headcount. The company is also adapting to a changing market landscape, with a noted increase in the concentration of sales from its top three customers, which accounted for 41.8% of total sales in the latest quarter, up from 31.1% a year earlier. This shift highlights the company's reliance on a smaller customer base, which may pose risks if demand from these customers fluctuates.

Key Tronic's balance sheet reflects a total of $327.8 million in assets as of December 28, 2024, down from $355.3 million at the end of the previous fiscal year. Current liabilities decreased to $93.8 million, while long-term debt stood at $106 million, down from $116.4 million. The company has maintained a strong liquidity position, with $4.2 million in cash and $18.1 million available under its asset-based revolving credit facility. However, the net loss for the quarter was $4.9 million, or $0.46 per diluted share, compared to a net income of $1.1 million, or $0.10 per diluted share, in the same quarter last year.

Looking ahead, Key Tronic anticipates a gradual recovery in demand as it continues to win new programs, particularly in aerospace systems and energy resilience technology. The company expects to benefit from its recent refinancing of debt, which is projected to lower cash interest expenses. However, it also faces challenges, including rising wages in Mexico and potential tariffs that could impact its competitive position. The company remains focused on restructuring efforts and adapting to market conditions to enhance operational efficiency and profitability.

Overall, while Key Tronic is navigating a challenging environment with declining sales and restructuring efforts, it is positioning itself for potential growth through strategic adaptations and a focus on higher volume manufacturing. The company’s management remains optimistic about future cash flow generation and operational improvements as it moves into the next quarter.