Key Tronic Posts 13% Revenue Drop in Q4

Key Points

• Revenue (GAAP) dropped 12.7% year over year to $110.5 million in Q4 FY2025 as customer demand fell and new program launches were delayed.

• Gross margin (GAAP) contracted to 6.2%, with net loss almost doubling compared to the prior year.

• Key Tronic did not provide financial guidance for the next quarter, citing ongoing uncertainty from global tariffs.

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Key Tronic (NASDAQ:KTCC), an electronics manufacturing services provider serving diversified end markets, released its earnings for the fourth quarter of fiscal 2025 on August 27, 2025. Net loss (GAAP) widened to $3.9 million, and gross margin (GAAP) narrowed by 1.0 percentage point from the prior year period. These results were below typical trends and continued the sequential weakness seen over recent quarters, stemming largely from declining demand among key longstanding customers and the effects of tariff-related order delays. The overall quarter was marked by erosion in profitability and revenue, despite progress in operational cash flow and strategic business shifts.

About Key Tronic and Its Business Focus

Key Tronic is a contract manufacturer known for its roots in keyboard production and its evolution into a provider of engineering, design, and manufacturing services across industries. It builds products such as pest control devices, personal protection equipment, air purification systems, automotive components, medical technology, and utilities inspection equipment.

This transition allows Key Tronic to reduce dependency on any single product area and to spread its risk across a wider range of markets. The move to become a full-service contract manufacturer is central to its current strategy. Recent business focus has included expanding into a broader set of end markets, boosting operational efficiency, and building a more resilient and flexible production footprint outside its traditional regions. Ongoing success depends on acquiring new customers, scaling new manufacturing programs, and aligning its cost structure to its revenue base. Diversifying the customer portfolio and maintaining efficiency are critical.

Quarter in Review: Operations, Financials, and Strategic Developments

During Q4 FY2025, Key Tronic saw revenue (GAAP) decline markedly, continuing a downtrend that began earlier. Management pointed to a drop in demand from two major longstanding customers, and also noted that delays in the launch of new manufacturing programs further hurt sales. These delays were mostly attributed to customers pausing orders in response to heightened uncertainty and fluctuations in global tariffs. As a result, the company has not yet seen the upturn it hoped for in sequential sales stabilization or recovery.

Gross margin, which measures how much profit a company makes after covering the costs of producing goods, contracted to 6.2% from 7.2%. This was primarily due to reduced sales volumes and the impact of severance expenses during a significant reduction in workforce. For the full year FY2025, however, gross margin (GAAP) improved from 7.0% to 7.8%, helped by ongoing cost reductions and operational changes, though these actions did not fully offset overhead costs and increased credit losses at the operating level.

Operating loss (GAAP) widened sharply. Actions taken included the elimination of about 300 positions in the quarter, and a total workforce reduction of about 800 over the year. The resulting severance costs contributed to a greater net loss (GAAP) compared to Q4 FY2024. Additionally, $1.8 million in credit loss adjustments for estimated collections from customers weighed on profitability for FY2025. Nonetheless, operating cash flow improved to $8.8 million from $7.7 million, allowing Key Tronic to reduce its long-term debt from $116.4 million at the end of FY2024 to $98.9 million at the end of FY2025.

Customer diversification remains a work in progress. The company highlighted several new program wins in fields such as pest control equipment and medical technology, as well as a newly disclosed manufacturing deal with a large data processing original equipment manufacturer (OEM). This new contract, based at its Mississippi plant, is expected to ramp up significantly in FY2026 and could generate more than $20 million in annual revenue. However, the scale of these wins has not yet been enough to offset the volume lost from major customers, underlining the ongoing risk of customer concentration and the need for further wins.

Outlook and What to Watch

Key Tronic did not provide revenue or earnings guidance for the first quarter of fiscal 2026. Leadership cited continuing uncertainty around potential global tariffs and the resulting lack of visibility into near-term customer order patterns. No guidance was offered for the next quarter.

Looking forward, the company continues to invest in expanding its manufacturing footprint in both the United States and Vietnam. Management aims for about half of all manufacturing to take place in these two countries by the end of fiscal 2026. These steps are aimed at mitigating the risks arising from global tariffs and customer hesitancy. Investors should monitor the pace of new customer program ramp-ups, the impact of further workforce and cost structure adjustments, and trends in operating cash flow and liquidity in future periods.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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