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Key Tronic Corporation Announces Results for the Second Quarter of Fiscal Year 2020

Expecting Revenue and Earnings Growth in the Third Quarter

SPOKANE VALLEY, Wash., Feb. 04, 2020 (GLOBE NEWSWIRE) -- Key Tronic Corporation (KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended December 28, 2019.

For the second quarter of fiscal year 2020, Key Tronic reported total revenue of $116.7 million, compared to $123.0 million in the same period of fiscal year 2019. For the first six months of fiscal year 2020, total revenue was $222.0 million, compared to $250.5 million in the same period of fiscal year 2019.

For the second quarter of fiscal year 2020, net income was $0.8 million or $0.08 per share, compared to net income of $1.6 million or $0.15 per share for the same period of fiscal year 2019. For the first six months of fiscal year 2020, net income was $2.4 million or $0.22 per share, compared to $3.2 million or $0.29 per share for the same period of fiscal year 2019.

As previously announced, the lower than anticipated earnings for the second quarter of fiscal 2020 was primarily a result of increased factory spending in the Company’s Juarez metal fabrication departments. This spending was necessitated by both new and existing customers exiting their manufacturing arrangements in China and ramping their production in Juarez. While the financial effect on Key Tronic was significant, the long-term relationship with these customers was strengthened by the performance of the Juarez facility under extreme pressure. Additionally, the Company incurred unfavorable foreign currency losses related to its unhedged portion of Mexican labor expenses due to a strengthening peso over the quarter.

The unanticipated increase in factory spending discussed above adversely impacted the Company’s margins. For the second quarter of fiscal year 2020, gross margin was 7.0% and operating margin was 1.3%, compared to 8.0% and 2.1%, respectively, in the same period of fiscal 2019.

“Moving into the third quarter of fiscal 2020, the need for increased factory spending has diminished and we see potential revenue and earnings growth in coming periods,” said Craig Gates, President and Chief Executive Officer. “Furthermore, uncertainty over tariffs and trade tension between the US and China continues to drive a number of existing and new customers to accelerate their plans to transition from China facilities to our expanding facilities in Mexico and Vietnam. While this transition caused delays in production during the first half of fiscal 2020, we see it as a very positive trend over the longer term, as customers see the increasing advantages of our North American and Vietnam based production.”

“During the second quarter of fiscal 2020, we continued to win significant new business from EMS competitors and from existing customers, including new programs involving consumer medical devices, Wi-Fi enabled signage and temperature control devices. To prepare for growth in coming quarters, we have invested in the capacity of our Mexico, US and new Vietnam facilities, including a significant increase in our sheet metal capacity to address demand. We remain optimistic about our opportunities for growth in the second half of fiscal 2020 and beyond.”

Business Outlook

For the third quarter of fiscal year 2020, Key Tronic expects to report revenue in the range of $117 million to $121 million, and earnings in the range of $0.12 to $0.17 per diluted share. These expected results assume an effective tax rate of 20% in the quarter. Key Tronic is working closely with its employees and key suppliers to ascertain delays attributable to the recent outbreak of coronavirus in China.  Potential delays in production and extended transit times of critical parts could significantly impact results in each of our production facilities.

Conference Call

Key Tronic will host a conference call to discuss its financial results at 2:00 PM Pacific (5:00 PM Eastern) today. A broadcast of the conference call will be available at www.keytronic.com under “Investor Relations” or by calling 800-353-6461 or +1-334-323-0501 (Access Code: 4722324).  A replay will be available by calling 888-203-1112 or +1-719-457-0820 (Access Code: 4722324).

About Key Tronic

Key Tronic is a leading contract manufacturer offering value-added design and manufacturing services from its facilities in the United States, Mexico, China, and Vietnam. The Company provides its customers full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, and worldwide distribution. Its customers include some of the world’s leading original equipment manufacturers. For more information about Key Tronic visit: www.keytronic.com.

Some of the statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all passages containing verbs such as aims, anticipates, believes, estimates, expects, hopes, intends, plans, predicts, projects, targets, or will, similar verbs, or nouns corresponding to such verbs. Forward-looking statements also include other passages that are primarily relevant to expected future events or that can only be fully evaluated by events that will occur in the future. Forward-looking statements in this release include, without limitation, the Company’s statements regarding its expectations with respect to quarterly and yearly revenue and earnings during periods of fiscal year 2020, the impact of the outbreak of the coronavirus in China on our Company and our suppliers and customers, effects of recent tax reform, tariff measures, and trade tensions, business from new customers and new programs, improvement in supply chain deliveries, impairment charges of goodwill and intangibles, and operational streamlining. There are many factors, risks and uncertainties that could cause actual results to differ materially from those predicted or projected in forward-looking statements, including but not limited to the future of the global economic environment and its impact on our customers and suppliers; the availability of parts from the supply chain; the accuracy of customers’ forecasts; success of customers’ programs; timing and effectiveness of ramping of new programs; development and success of new-product introductions; acquisitions or divestitures of operations or facilities; technology advances; changes in pricing policies by the Company, its competitors, customers or suppliers; impact of tax reform and related activities and the other risks and uncertainties detailed from time to time in the Company’s SEC filings.

(In thousands, except per share amounts)

  Three Months Ended   Six Months Ended
  December 28, 2019   December 29, 2018   December 28, 2019   December 29, 2018
Net sales $ 116,722     $ 123,037     $ 222,007     $ 250,509  
Cost of sales 108,600     113,157     204,612     231,096  
Gross profit 8,122     9,880     17,395     19,413  
Research, development and engineering expenses 1,720     1,857     3,380     3,557  
Selling, general and administrative expenses 4,904     5,399     9,978     10,687  
Impairment of goodwill and intangibles              
Total operating expenses 6,624     7,256     13,358     14,244  
Operating income 1,498     2,624     4,037     5,169  
Interest expense, net 524     708     1,234     1,385  
Income before income taxes 974     1,916     2,803     3,784  
Income tax provision 150     327     427     602  
Net income $ 824     $ 1,589     $ 2,376     $ 3,182  
Net income per share — Basic $ 0.08     $ 0.15     $ 0.22     $ 0.30  
Weighted average shares outstanding — Basic 10,760     10,760     10,760     10,760  
Net income per share — Diluted $ 0.08     $ 0.15     $ 0.22     $ 0.29  
Weighted average shares outstanding — Diluted 10,877     10,881     10,811     10,986  

(In thousands)

    December 28, 2019   June 29, 2019
Current assets:        
Cash and cash equivalents   $ 499     $ 601  
Trade receivables, net of allowance for doubtful accounts of $58 and $58   70,225     58,429  
Contract assets   17,071     22,161  
Inventories, net   110,144     100,431  
Other   20,254     16,477  
Total current assets   218,193     198,099  
Property, plant and equipment, net   30,825     29,413  
Operating lease right-of-use assets, net   14,876      
Other assets:        
Deferred income tax asset   8,207     7,840  
Other intangible assets, net       657  
Other   1,869     2,301  
Total other assets   10,076     10,798  
Total assets   $ 273,970     $ 238,310  
Current liabilities:        
Accounts payable   $ 80,448     $ 73,571  
Accrued compensation and vacation   6,954     6,759  
Current portion of debt, net   7,508     5,841  
Other   13,350     7,233  
Total current liabilities   108,260     93,404  
Long-term liabilities:        
Term loans   7,087     7,091  
Revolving loan   32,018     23,356  
Operating lease liabilities   9,780      
Other long-term obligations   18      
Total long-term liabilities   48,903     30,447  
Total liabilities   157,163     123,851  
Shareholders’ equity:        
Common stock, no par value—shares authorized 25,000; issued and outstanding 10,760 and 10,760 shares, respectively   46,821     46,680  
Retained earnings   67,729     65,353  
Accumulated other comprehensive gain   2,257     2,426  
Total shareholders’ equity   116,807     114,459  
Total liabilities and shareholders’ equity   $ 273,970     $ 238,310  


CONTACTS: Brett Larsen Michael Newman
  Chief Financial Officer Investor Relations
  Key Tronic Corporation StreetConnect
  (509) 927-5500 (206) 729-3625