Yahoo Finance Kimball Electronics Inc (KE) (Q3 2024) Earnings Call Transcript Highlights: Navigating ...
Net Sales: $425 million, a 12% decrease year-over-year.
Gross Margin: 7.9%, down from 8.9% in the previous year.
Adjusted Operating Income: $17 million, representing 4% of net sales.
Adjusted Net Income: $8.4 million, or $0.34 per diluted share.
Cash and Cash Equivalents: $65.2 million as of March 31, 2024.
Operating Cash Flow: $42.6 million for the quarter.
Inventory Levels: Reduced to $396.2 million from $488.2 million year-over-year.
Capital Expenditures: $13.4 million during the quarter.
Total Debt: $319.6 million as of March 31, 2024.
Guidance for Adjusted Operating Income: 4.2% to 4.6% of net sales.
Updated Capital Expenditures Guidance: Expected to be between $55 million to $60 million.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Kimball Electronics Inc (NASDAQ:KE) is focusing on core EMS operations and medical solutions, enhancing strategic alignment and potential for growth.
The company has successfully reduced inventory levels by over $90 million from their peak, improving working capital management.
Kimball Electronics Inc (NASDAQ:KE) is making significant investments in long-term growth opportunities, supported by a robust funnel of new business over the next 18 to 24 months.
Despite a decrease in net sales, there was a sequential increase in sales by $4 million or nearly 1%, indicating some resilience in operations.
Kimball Electronics Inc (NASDAQ:KE) continues to maintain stable operating margins and is taking proactive steps to align cost structures with current market demands.
Negative Points
Net sales in the third quarter totaled $425 million, a 12% decrease from the previous year, indicating continued challenges in market conditions.
The divestiture of the automation test and measurement business, although strategic, indicates a contraction in business scope which could impact revenue streams.
Kimball Electronics Inc (NASDAQ:KE) recorded impairment and restructuring charges in the third quarter, reflecting ongoing adjustments and potential instability.
The company is experiencing softness across all vertical markets and regions, complicating recovery efforts and growth.
Projected macroeconomic headwinds are expected to persist into fiscal 2025, suggesting continued challenges ahead for Kimball Electronics Inc (NASDAQ:KE).
Q & A Highlights
Q: Hi, good morning. Thanks for taking my questions. So first, I'll just start out broadly in the first quarter, you know, you mentioned your expectations that macro will remain challenging for some time, right. Obviously, now you're you're being a little more direct in saying my persist through fiscal year '25. I'm just curious if this is if that's maybe longer than you thought last quarter or what has changed or are you seeing any incremental weakness in certain end markets? Just a little bit more color there would be helpful. A: Richard Phillips - Kimball Electronics Inc - Chief Executive Officer, Director: Yeah, Griffin. Hi, how are you? Thanks for joining the call. You know, I would say, Griffin, we've tried not to be too precise in predicting the return to normal levels of demand stability just because there's so many so much uncertainty. And so many factors, we obviously stay very close to our customers and their demand signals and work with them on what they're seeing and expecting. And I would say, while we haven't addicted this return to stability, it has persisted probably longer than we anticipated. And those are the signals we continue to see. Again, we're having a lot of success in building our funnel in winning new programs in delivering on operations and quality performance. And so we continue to have that really optimistic long term view. But to your point, this softness has been persisting, and that's why we updated our perspective on fiscal year 2025.
Q: Right. Okay. That's helpful. So has anything changed? I guess, I'll just hone in on maybe North American steering and braking. Obviously, that's been an area of strength in the past couple of quarters. Is that is that trend changed at all? Or what do you what are you seeing in that market? A: Jana Croom - Kimball Electronics Inc - Chief Financial Officer: So we are seeing softening in the North American market. We're seeing softening in the Asia market related to the steering and braking business. And I think it's just a result of a couple of things. one inventory levels as where the tier two supplier in the Tier 1s are ours. But that's a reflection of consumer demand. And so I think everyone's sort of taking a bit of a wait and see approach given the geopolitical environment. You couple that with some things that EV and hybrid automakers have to work through in terms of improving battery life and which is something they've been talking about. And and we've been seeing and I know here we are and but we do expect it to be to persist through fiscal 2025. And that is new.
Q: Okay, understood. Thanks, Jana. And then just switching over to the automation test and measurement divestiture or it could you give any more sense of the size of that business or scale as it relates to revenue contribution to the company? A: Jana Croom - Kimball Electronics Inc - Chief Financial Officer: Yes. So actually, Griffin, if you look at our press release, we tried to give it to tell you wouldn't have had to guess we're not giving you complete information right now because the sale is in progress. But once the sale is consummated, we will give you more fulsome information. And what we disclosed in the press release was net sales and operating income for the three months in the nine months. And then, of course, as we proceed through FY25, we'll we'll give you all that information as well. I'll give you some color.
Q: Yes, good morning, everyone. Thanks for taking the questions. Just back to the divested 1st year of continued quantified, although the cost savings you expect on an annual basis, what sort of a change to OpEx? No growth maintenance CapEx on what's the change you expand on the model post divestiture here? So maybe we'll just start there. A: Jana Croom - Kimball Electronics Inc - Chief Financial Officer: Yes. Good morning, Derek, and thank you for the question. So I'll start with CapEx because that's probably the easiest and this particular business was not as significantly capital intensive. And so you will see some decline in CapEx, but it's not going to be meaningful. The CapEx that you're going to see from us going forward is going to be more a function of rightsizing and the need to continue to invest in the business for future growth against the current economic environment. And so look for FY25 to be similar in nature to FY24 is what I would tell you the model in terms of additional opportunities for cost savings, the focus is going to be on rightsizing the company for the current demand and considering the future growth that we've got. And I'm just going to go ahead and say it at some point, Eric, we are in our goal of adjusted operating income margin and the 5 to 5.5 range, Navistar being local and something we actually deliver. And so with that in mind, we are going to be looking to streamline the company and to deliver those results. There's always a journey and I have the home.
Q: Thanks for taking my questions. Just a couple on the test and measurement business. How much of the updated outlook is being driven by the sale versus just broader softness? A: Jana Croom - Kimball Electronics Inc - Chief Financial Officer: Yeah, that's a great question. So we look at our industrial segment, which is where 8m live this quarter, for example. If I look at the decline in industrial, roughly half of it was from AT&M. And remember, it's not discuss that. That's truly the decline year over year that we saw revenue in the AT&M business. So hopefully, that gives you from some color there. But we are selling if I had a target out you and big pictures, I would say you've got the FDA recall from a single customer. The softness in industrial half of it is AT&M business. And then you've got some bright spots and medical that are offsetting some softness that we're seeing in automotive.
Q: Going from Regeneron was nice to see the working capital recovery benefits. And it seemed like free cash flow was about $29 million in the quarter. Some of those crudes McGladrey. So clawing that back on generically the question, you lowered your CapEx guidance by $15 million to $20 million this year, not that much tied to the divestiture. And how should we think about next year would kind of that $15 million to $20 million CapEx cut rollover? And because it's up next year, you think can be $70 million to $80 million CapEx for next year? A: Jana Croom - Kimball Electronics Inc -
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
