FY 2020 Second Quarter

KEYTRONIC CORPORATION ANNOUNCES RESULTS

FOR THE SECOND QUARTER OF FISCAL YEAR 2020

Expecting Revenue and Earnings Growth in the Third Quarter

Spokane Valley, WA — February 4, 2020 — Key Tronic Corporation (Nasdaq: 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.

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

 

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

 

 

KEY TRONIC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

December 28, 2019

 

June 29, 2019

ASSETS

 

 

 

 

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

 

LIABILITIES AND SHAREHOLDERS EQUITY

 

 

 

 

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

 

 

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