Kimball Electronics(US:KE)2024-05-08 18:41Financial Data and Key Metrics Changes - Net sales in Q3 totaled $425 million, a 12% decrease from the prior year, but a sequential increase of nearly 1% from the previous quarter [6][22][40] - Gross margin rate in Q3 was 7.9%, down 100 basis points from 8.9% in Q3 of fiscal 2023, attributed to lower absorption in manufacturing facilities [8][40] - Adjusted net income in Q3 was $8.4 million, or $0.34 per diluted share, compared to $16.4 million, or $0.65 per diluted share in the same quarter last year [40][41] - Cash and cash equivalents at March 31, 2024, were $65.2 million, with cash flow from operating activities of $42.6 million [23] Business Line Data and Key Metrics Changes - Net sales in the automotive vertical were $202 million, down 9% year-over-year, representing 47% of total company sales [37] - Medical vertical sales were $113 million, a 17% decrease compared to Q3 last year, driven by an FDA recall affecting a major customer [20] - Industrial sales were $110 million, a 14% decrease year-over-year, with half of the decline attributed to the AT&M business [38] Market Data and Key Metrics Changes - The decline in sales was observed across all verticals and geographic regions, with notable weakness in Europe, North America, and Asia [46] - The automotive market is experiencing softening demand, particularly in North America and Asia, influenced by inventory levels and consumer demand [47] Company Strategy and Development Direction - The company is divesting its automation, test, and measurement business to sharpen its strategic focus on core EMS operations [4][5] - There is an increased emphasis on the medical solutions business, with a realignment to enhance differentiation [5] - The company aims to balance organic growth with returning cash to shareholders through opportunistic share repurchases [6][41] Management's Comments on Operating Environment and Future Outlook - Management anticipates macroeconomic headwinds to persist into fiscal 2025, affecting demand stability [45][46] - The company is focused on aligning its cost structure with current demand trends while maintaining stable operating margins [19][11] - Management remains optimistic about long-term growth opportunities, particularly in the medical and automotive sectors [7][11] Other Important Information - The company recorded impairment and restructuring charges totaling $14.5 million after-tax in Q3 [22] - Capital expenditures in Q3 were $13.4 million, with an updated estimate for FY 2024 in the range of $55 million to $60 million [9][24] - The company published its annual ESG disclosures, highlighting sustainability efforts and achievements [25] Q&A Session Summary Question: What is the outlook for macro conditions? - Management noted that macro conditions are expected to remain challenging through fiscal 2025, with persistent softness in demand across all verticals and regions [45][46] Question: How is the divestiture of the AT&M business expected to impact the company? - The divestiture is aimed at sharpening strategic focus and is not significantly capital intensive, with expected cost savings to be realized [52][54] Question: What is the status of the automotive market, particularly in North America? - There is softening demand in the North American automotive market, influenced by inventory levels and consumer demand [47] Question: Can you provide more details on the medical vertical's performance? - The medical vertical experienced a decline due to an FDA recall affecting a major customer, but there are growth opportunities with other customers [20][77] Question: What are the expectations for capital expenditures moving forward? - Capital expenditures are expected to be managed tightly, with a focus on maintenance and strategically timed growth investments [76]