Release Date: February 05, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kimball Electronics Inc (KE, Financial) reported positive cash flow from operating activities for the fourth consecutive quarter.
- The company successfully reduced inventory levels by $149 million or 33% year-over-year.
- Debt was significantly reduced, with borrowings nearly 40% lower than a year ago.
- Kimball Electronics Inc (KE) is strategically repositioning for growth with a restructuring plan, including divesting non-core assets and focusing on medical CMO.
- The company was recognized with the highest overall customer rating in all seven categories by Circuits Assembly Service Excellence Awards.
Negative Points
- Net sales in the second quarter declined by 13% year-over-year, excluding A T&M, with significant declines in North America and Europe.
- The automotive segment experienced a 4% decrease in net sales compared to the previous year.
- The medical segment saw a 22% decrease in net sales, primarily due to program end-of-life and impacts from an FDA recall.
- Industrial net sales were down 20% year-over-year, with declines in smart metering programs and other areas.
- Kimball Electronics Inc (KE) revised its fiscal year 2025 guidance downward, anticipating more time needed to stabilize the business and return to historical growth patterns.
Q & A Highlights
Q: Is there a level of tariffs where it wouldn't make sense to move production back even at 25%? How should we think about that 25% number?
A: Steve Korn, Chief Operating Officer, explained that even with the additional tariffs, it is still more cost-effective for most products to be manufactured in Mexico. If required, a better solution might be moving business to Thailand to eliminate tariffs from both Mexico and China.
Q: How much more room do we have on inventory to work with, and how do you expect that to trend over the next few quarters?
A: Jana T. Croom, Chief Financial Officer, stated that the focus is on days rather than absolute dollars of reduction. Inventory should be a function of revenue, and while they are pleased with the progress, they aim to reduce cash conversion days to a two-digit number. Steve Korn added that inventory is expected to continue dropping over the next six to twelve months.
Q: How should we track what you're doing to start winning the winnable? Is there a bid proposal pipeline you can quantify?
A: Jana T. Croom mentioned that they are working with their Chief Commercial Officer to disclose more information on the funnel and win rates. They aim to provide more valuable data in the coming quarters, potentially by Q4 along with FY26 guidance.
Q: Is the revised guidance for fiscal '25 driven by one particular vertical, or is it broad-based softness across the entire business?
A: Jana T. Croom noted that there is broad-based softness, but the automotive sector is holding well, driven by strength in Asia. The medical and industrial verticals are still stabilizing and may continue to face challenges over the next few quarters.
Q: When you talk about the refocus on the medical vertical, are you making any changes to your organization for that?
A: Richard D. Phillips, CEO, confirmed that they have integrated their drug delivery business with their core EMS medical vertical to enhance leadership, talent, and collaboration. This structural change aims to leverage complementary capabilities and target the medical market more effectively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
