Kimball Electronics(US:KE)2022-05-06 19:19Financial Data and Key Metrics Changes - Net sales for Q3 were $368 million, a 19% increase year-over-year and $50 million higher than Q2 [13][18] - Operating margin improved to 5.5% of net sales, an increase of 80 basis points year-over-year [6] - Diluted EPS increased by more than 30% year-over-year, with net income at $13.6 million or $0.54 per diluted share, compared to $9.9 million or $0.39 per diluted share in Q3 last year [22] Business Line Data and Key Metrics Changes - Automotive sales reached over $160 million, a 16% increase year-over-year, representing 44% of total sales [13][14] - Medical sales were $103 million, a 20% increase year-over-year, indicating recovery from pandemic-related delays [15][16] - Industrial sales increased by 22% to $84 million, driven by demand for climate control products [17] - Public safety sales were $13.8 million, a 2% increase year-over-year [17] Market Data and Key Metrics Changes - The company experienced broad-based challenges in procuring materials across all verticals due to component shortages [41] - The backlog of open orders reached a record high of $930 million, up 43% year-over-year, driven by component shortages and new business wins [34] Company Strategy and Development Direction - The company completed a multi-year strategic plan, identifying growth opportunities in automotive, medical, industrial, and public safety markets [14] - Focus on expanding manufacturing capacity to support growth, with significant expansions planned in Thailand, Mexico, and Poland [35][36] - The company aims to reach $2 billion in annual sales, leveraging megatrends in the automotive industry, including electric vehicles and advanced technologies [14][34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining strong performance into fiscal year 2023, despite ongoing supply chain challenges and geopolitical tensions [6][33] - The impact of the Ukraine conflict on operations was deemed negligible for Q3, but management is closely monitoring the situation [46][47] - The company anticipates that the impacts of China's COVID lockdowns will be short-term and expects inventory levels to normalize as supply chain issues improve [12][24] Other Important Information - Capital expenditures for Q3 were $22.3 million, with total CapEx expected to be in the range of $70 million to $80 million for the fiscal year [25][30] - The company amended its primary credit facility, increasing capacity from $150 million to $300 million to support growth initiatives [29] Q&A Session Summary Question: Which segment faced the most challenges in procuring materials? - Management indicated that all verticals faced broad-based challenges with component shortages, but improvements were noted in Q3 compared to Q2 [41][42] Question: What helped achieve the improved margins? - The retention of a highly skilled workforce and increased utilization due to improved material availability contributed significantly to margin improvement [44] Question: What is the anticipated impact of the Ukraine conflict on the auto market? - Management noted that the impact was negligible for Q3, but they are monitoring the situation closely for potential future effects [46][47] Question: How much of the backlog is due to supply headwinds versus new programs? - Management indicated that a significant portion of the backlog is due to supply shortages, but there are also new business awards contributing to the backlog [48][49] Question: What are the thoughts on dividends as part of capital allocation? - Management stated that dividends are always evaluated as part of capital allocation priorities, but the focus remains on organic growth and capital expenditures [50] Question: Are new automotive contracts included in the backlog? - Yes, new automotive awards are being placed in the company's footprint, including expansions in Mexico and Poland [70][71] Question: How is the company managing freight cost inflation? - The company plans to pass increased freight costs through to selling prices to mitigate margin impacts [72] Question: Are there plans for further capital projects beyond $2 billion in revenue? - Management indicated that they are considering additional facility expansions as they approach the $2 billion milestone [75][76]