KeyTronicEMS Journal of Business

Posted by KeyTronicEMS on August 27, 2010

Key Tronic adds space, prospers Spokane-based company beefs up offshore, renews lease, hires people here

By Richard Ripley
Of the Journal of Business

Key Tronic Corp., the Spokane Valley provider of electronic manufacturing services, has bought a building adjacent to its manufacturing facilities in Mexico, has leased a building near its manufacturing operation in China, and has renewed for another 10 years its lease on its building here and has taken additional space there.

In addition to increasing its manufacturing capacity offshore, the company has hired more than 20 workers here in the last few months, and in the last year has added a total of close to 30 people here, giving it nearly 200 Spokane-area employees, says Ron Klawitter, the company's chief financial officer.

"We're doing real well," Klawitter says. "We had a very good quarter."

Last week, the company reported its highest ever quarterly revenue, of $61.9 million, in its fiscal fourth quarter ended July 3. It also reported net income for the quarter of $2.3 million, or 22 cents a diluted share, up from $300,000, or 3 cents a share, in the year-earlier period.

The company says that for its full 2010 fiscal year, it had total revenue of $199.6 million, up 8 percent from fiscal 2009, and it earned net income of $8.7 million, or 85 cents a share.

"This past year was our second-best year for profits," says Klawitter. Net income was up from $1.1 million, or 11 cents a diluted share, the year earlier.

After paying off all $12 million of its bank debt, Key Tronic borrowed $1 million on the last day of its fiscal year to buy, at a total cost of a little more than $2 million, the 114,500-square-foot building in Juarez, Mexico, across the street from four buildings there where it has 370,000 square feet of space.

The company, which employs some 2,000 workers in Juarez already, bought the structure to accommodate some of the new business it has brought in, including assembly of a medical device used in doctor's offices, Klawitter says. He declines to elaborate on the device.

"It's a pretty good indicator of our growth," he says of the added space. "Even during the recession, when most companies were hurting, we paid off all of our bank debt. It's helped us win business from some of our competitors."

When the downturn hit, the company that placed the order for the medical device "got very concerned that our competition was weak financially" and decided to move the making of the device, along with the necessary equipment, to Key Tronic, Klawitter says. "They think that we were a better long-term bet" to remain in operation, he says.

Key Tronic currently is doing prototype work in Spokane on the product, and while it will add workers in Mexico to accommodate the making of the device, it doesn't know yet how many, he says.

In Shanghai, China, the company leased 50,000 square feet of space across the street from the 90,000 square feet of space it has there, Klawitter says.

"We had quite a few new customers who wanted to have their products built in China," he says. The company will do electronic assembly there for industrial products.

Key Tronic had been looking for a new location so it could expand in China, Klawitter says. "The landlord didn't want to lose us as a tenant, so he made the space available to us."

Key Tronic likely will invest between $200,000 and $300,000 to put in utilities, air-conditioning, and offices and set up the assembly line in the new building, he says. "In China, it's a lot less expensive to lease a building than to buy it," he adds. The company already employs about 300 workers there, and while it will add some employees to handle the new business, it's unsure how many new workers it will need, Klawitter says.

At its Spokane Valley headquarters, the company took an additional about 12,000 square feet of space as it renewed its lease for another 10 years, Klawitter says. He says the building is the same one where Key Tronic was located when founder Lew Zirkle took the company public years ago. Key Tronic also has 36,000 square feet of space in the Spokane Business & Industrial Park, where it makes plastic injection molding tools.

At its main building, the company has its new-product introduction facility and some assembly capacity for making printed circuit boards, and the assembly operation had pretty much taken over space that the company had used for its cafeteria, Klawitter says.

In its earnings release last week, the company said it expects to report revenue in the range of $58 million to $61 million, and earnings in the range of 17 cents to 20 cents a share, in its fiscal 2011 first quarter, which will end about Sept. 30. It added that its forecast could be affected by continuing supply chain issues as the world's electronic parts supply ramps up to meet demand.

"We're very pleased with our strong growth in revenue and earnings for fiscal 2010, driven by increased demand from both new and longstanding customers," says Craig Gates, the company's president and CEO. "We began the year in the depths of the global recession and ended with the highest quarterly revenue in Key Tronic's history. We've remained profitable for 26 consecutive quarters and significantly increased our profitability in fiscal 2010 compared to recent years."

The company has controlled costs, maintained strong operating efficiencies, and improved its new-product introduction processes as it has grown, he says.

Gates also says that recent forecasts predict double-digit growth for the electronic manufacturing services market in coming years. "With our unique combination of world-class engineering, global logistics, and cost-effective production, we're increasingly well positioned to continue to capture market share and capitalize on emerging opportunities."