Key Tronic Q3 Loss Narrows, Revenues Fall 21% Amid Tariff Turmoil

Core Viewpoint - Key Tronic Corporation is facing significant challenges in the third quarter of fiscal 2025, with a notable decline in revenues due to global tariff volatility and reduced customer demand, while simultaneously making strides in operational efficiency and securing new contracts for future growth [1][2][9][12]. Revenue & Earnings Overview - Total revenues for the third quarter of fiscal 2025 were reported at $112 million, a decrease of 21.3% from $142.4 million in the same quarter last year [2] - The gross margin improved to 7.7% from 5.7% year over year, attributed to cost-cutting measures and workforce reductions [2] - The company reported a net loss of $0.6 million or 6 cents per share, an improvement from a net loss of $2.2 million or 21 cents per share in the prior year [3] Operational Performance & Business Metrics - Operating cash flow for the first nine months of fiscal 2025 was $10.1 million, up from $6.1 million in the same period last year [4] - Inventory levels decreased by 14% or $16 million year over year, aligning with current revenue levels [4] - Total liabilities were reduced by 14% or $34.3 million compared to the same quarter last year [4] Capital Expenditure - Capital expenditure for the first nine months of fiscal 2025 was approximately $3 million, with expectations for the full year between $6 million and $8 million, primarily for capacity expansions in Arkansas and Vietnam [5] Management Commentary - Management highlighted that global tariff volatility, especially concerning components from China, has caused customer hesitancy [6] - The company is optimistic about long-term growth, focusing on operational streamlining and cost reductions [6] Business Wins - Key Tronic secured five significant contracts in the quarter, including a $12 million telecommunications program in Mexico and a $6 million pest-control device contract in Vietnam [7] - A $1 million design contract with potential production value up to $15 million emphasizes the importance of the company's design capabilities [7] Future Developments - A previously disclosed $60 million program is on track, with ramp-up expected to begin in the first quarter of fiscal 2026 [8] - The company plans to invest over $28 million in a new manufacturing and R&D facility in Arkansas, projected to create over 400 jobs [11] - Expansion plans in Vietnam aim to more than double the current manufacturing footprint, providing alternatives to Chinese manufacturing [11] Summary - Despite facing near-term challenges such as falling revenues and macroeconomic uncertainties, Key Tronic is strengthening its cost base, expanding its operational footprint, and diversifying its customer portfolio, which may lead to a return to profitability in the long term [12]