Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kimball Electronics Inc (KE, Financial) has strategically restructured by divesting non-core businesses and focusing on key growth areas within the medical vertical.
- The company has sharpened its strategic focus across its three vertical markets, targeting attractive new market spaces such as automotive domain controllers and energy storage solutions.
- Kimball Electronics Inc (KE) has been proactive in adjusting resources and costs to align with ongoing market demand, which is expected to benefit the company as demand stabilizes.
- The company has successfully reduced inventory levels by over $150 million, generating significant positive cash flow and reducing debt to a two-year low.
- Kimball Electronics Inc (KE) announced the closure of its Tampa manufacturing facility to streamline operations and improve efficiency, with plans to transfer production to other facilities, enhancing competitiveness.
Negative Points
- Net sales for the first quarter decreased by 15% year over year, with declines across all three verticals: automotive, medical, and industrial.
- The automotive segment experienced an 11% decline in net sales due to volume softening and overstocking, particularly in Europe and North America.
- The medical segment saw a 12% decrease in net sales, heavily impacted by volume declines in Asia due to excess inventory.
- The industrial segment reported a 22% decline in net sales, with significant decreases in North America and Europe due to weak demand for certain products.
- Gross margin rate declined by 180 basis points compared to the previous year, primarily due to lower absorption from declining sales.
Q & A Highlights
Q: Can you remind us what the Tampa Bay facility is on the books for and clarify whether the proceeds from selling the land and building will exceed the exit costs?
A: The facility is on the books for considerably less than the expected sale price. We estimate the sale could fetch around $18 million to $20 million, which significantly exceeds the exit costs of $8 million to $11 million.
Q: Could you help us understand the life cycle of the programs within each vertical market?
A: Industrial has the shortest lifespan with many NPIs expected over the next 24 months. Automotive has three significant programs ramping up over the next 18 months, which will lower the average life of that portfolio. Medical has a steady stream of business with a stable portfolio lifespan of 5 to 6 years.
Q: What visibility do you have on the elevated inventory in the automotive sector clearing out, and what is the potential timeline?
A: We are in close contact with customers to monitor demand. However, we do not have a clear timeline for when inventory levels will stabilize, as it is subject to market dynamics.
Q: How should we think about gross margin trends for the remainder of fiscal '25?
A: Gross margin is dependent on revenue and cost management. We had $2.3 million in restructuring costs in Q1 and expect similar costs in Q2. We anticipate a measured improvement in Q2 and more significant improvement in the latter half of the year.
Q: Should September be considered the low watermark for the year from a revenue perspective?
A: Based on our guidance, Q2 revenue is expected to be slightly below Q1, indicating that October might be the low watermark.
Q: Regarding the sequential decline in Q2, is it by dollar amount, and how does it affect margins?
A: The decline is by revenue, but we expect improved gross margins and operating margins.
Q: How are you managing automotive inventory given the long lead times and demand fluctuations?
A: Automotive inventory is challenging due to long lead times. We are working with customers to align inventory with demand, which involves timing issues and cost management.
Q: What are the expected savings from the Tampa facility closure, and when will the exit costs be incurred?
A: We have not disclosed specific savings but expect a meaningful impact on North America and the consolidated enterprise. Exit costs will begin in Q2 as we start the transfer process.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
