Favorable Product Mix and Improved Efficiencies; Expecting Revenue Growth in the Second Quarter

SPOKANE VALLEY, Wash., Oct. 29, 2019 (GLOBE NEWSWIRE) -- Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the quarter ended September 28, 2019.

For the first quarter of fiscal year 2020, Key Tronic reported total revenue of $105.3 million, compared to $127.5 million in the same period of fiscal year 2019. An unanticipatedly strong increase in the demand for sheet metals from both new and existing customers caused workload balancing challenges. The resulting capacity constraints caused production delays and were the primary reason for the unexpected shortfall in revenue.

Despite the revenue shortfall, margin percentages improved when compared with the prior year on far less revenue as a result of favorable product mix and productivity efficiencies.  For the first quarter of fiscal year 2020, gross margin was 8.8% and operating margin was 2.4%, compared to 7.5% and 2.0%, respectively, in the same period of fiscal 2019. For the first quarter of fiscal year 2020, net income was $1.6 million or $0.14 per share, compared to net income of $1.6 million or $0.15 per share for the same period of fiscal year 2019.

“As the result of concerns over tariffs and trade tension between the US and China, a number of existing and new customers have accelerated their plans to transition from China facilities to our expanding facilities in Mexico and Vietnam,” said Craig Gates, President and Chief Executive Officer. “While this transition and increasing demands in sheet metals caused delays in production during the first quarter, we see this trend as an important and very positive sign over the longer term, as customers see the increasing advantages of our North American and Vietnam based production. We continue to invest in enabling and accelerating this transition as we capitalize on the successful ramp up of our Vietnam facility.

“During the first quarter of fiscal 2020, we continued to win significant new business from EMS competitors and from existing customers, including new programs involving electric vehicle charging infrastructure, LED lighting, oil and gas sensors, and flight controls for experimental aircrafts. To prepare for growth in coming quarters, we continue to invest in new capacity in 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 fiscal 2020 and beyond.”

Business Outlook

For the second quarter of fiscal year 2020, the Company expects to report revenue in the range of $117 million to $122 million, and earnings in the range of $0.13 to $0.18 per diluted share. These expected results assume an effective tax rate of 20% in the quarter.

Conference Call

Key Tronic will host a conference call to discuss its financial results at 2:00 PM Pacific (5:00 PM Eastern) on October 29, 2019. A broadcast of the conference call will be available at www.keytronic.com under “Investor Relations” or by calling 800-367-2403 or +1-334-777-6978 (Access Code: 7136826).  A replay will be available by calling 888-203-1112 or +1-719-457-0820 (Access Code: 7136826).

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, 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
 September 28, 2019 September 29, 2018
Net sales$105,285  $127,472 
Cost of sales96,012  117,939 
Gross profit9,273  9,533 
Research, development and engineering expenses1,660  1,700 
Selling, general and administrative expenses5,074  5,288 
Impairment of goodwill and intangibles   
Total operating expenses6,734  6,988 
Operating income2,539  2,545 
Interest expense, net710  677 
Income before income taxes1,829  1,868 
Income tax provision277  275 
Net income$1,552  $1,593 
Net income per share — Basic$0.14  $0.15 
Weighted average shares outstanding — Basic10,760  10,760 
Net income per share — Diluted$0.14  $0.15 
Weighted average shares outstanding — Diluted10,805  10,979 
      
      


KEY TRONIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 September 28, 2019 June 29, 2019
ASSETS   
Current assets:   
Cash and cash equivalents$504  $601 
Trade receivables, net of allowance for doubtful accounts of $58 and $5866,781  58,429 
Contract assets21,762  22,161 
Inventories, net117,737  100,431 
Other17,735  16,477 
Total current assets224,519  198,099 
Property, plant and equipment, net29,984  29,413 
Operating lease right-of-use assets, net16,056   
Other assets:   
Deferred income tax asset8,476  7,840 
Other intangible assets, net  657 
Other2,092  2,301 
Total other assets10,568  10,798 
Total assets$281,127  $238,310 
LIABILITIES AND SHAREHOLDERS EQUITY   
Current liabilities:   
Accounts payable$87,214  $73,571 
Accrued compensation and vacation7,359  6,759 
Current portion of debt, net7,508  5,841 
Other12,746  7,233 
Total current liabilities114,827  93,404 
Long-term liabilities:   
Term loans8,964  7,091 
Revolving loan31,313  23,356 
Operating lease liabilities10,885   
Total long-term liabilities51,162  30,447 
Total liabilities165,989  123,851 
Shareholders’ equity:   
Common stock, no par value—shares authorized 25,000; issued and outstanding
10,760 and 10,760 shares, respectively
46,754  46,680 
Retained earnings66,905  65,353 
Accumulated other comprehensive gain1,479  2,426 
Total shareholders’ equity115,138  114,459 
Total liabilities and shareholders’ equity$281,127  $238,310 
        
        


   
CONTACTS:Brett LarsenMichael Newman
 Chief Financial OfficerInvestor Relations
 Key Tronic CorporationStreetConnect
 (509) 927-5500(206) 729-3625