Key Tronic Posts Break-Even Earnings, Y/Y Revenue Dip in Q4

Key Tronic Corporation's KTCC fourth-quarter fiscal 2024 results reflected significant impacts of a cybersecurity incident that disrupted its operations, leading to mixed performance. The company faced notable challenges, including a sharp year-over-year decline in revenues and break-even earnings, stemming from its inability to fulfill orders during the quarter.

However, strategic cost-cutting measures, including workforce reductions and favorable currency fluctuations, provided some relief. As the company navigates the aftermath of the cyberattack, management's outlook for the first quarter of fiscal 2025 suggests a recovery, with an anticipated boost in revenues and earnings as Key Tronic continues to capitalize on business opportunities and operational efficiencies.

Q4 Results

KTCC reported fourth-quarter fiscal 2024 break-even earnings per share, declining from 10 cents in the year-ago quarter.

Total quarterly revenues were $125.7 million, a significant decline from $162.6 million in the prior-year quarter.

Weak quarterly earnings primarily resulted from the inability to fulfill approximately $15 million in orders during the quarter as a result of the cyberattack. The negatives were partially offset by lower operating expenses, aided by workforce reductions in Mexico and favorable currency fluctuations.

Key Business Metrics

Net income for fourth-quarter fiscal 2024 was break-even, whereas it reported $1.1 million in fourth-quarter fiscal 2023. This decline reflects increased cybersecurity-related expenses, offset partially by an insurance gain and the weakening of the Mexican Peso, which reduced expenses.

Adjusted net income, which excludes certain one-time expenses, was $1.1 million, up slightly from $1 million in fourth-quarter fiscal 2023.

The company maintained a gross margin of 9% for fourth-quarter fiscal 2024, slightly up from 8.5% in the prior-year quarter, aided by workforce reductions in Mexico and favorable currency fluctuations.

Operating income for the quarter was $2.7 million, down from $4.2 million in the prior-year period. This decline was driven by lower revenues and higher operating expenses, including cybersecurity costs.

Expenses

The company saw a decrease in total operating expenses to $8.6 million from $9.7 million in the prior-year quarter.

However, interest expenses rose to $3.2 million from $2.9 million in fourth-quarter fiscal 2023, further pressuring the bottom line. The company reported a slight tax benefit in fourth-quarter fiscal 2024, which helped mitigate the overall net loss for the full fiscal year.

Cash & Debt

Key Tronic ended fourth-quarter fiscal 2024 with cash and cash equivalents of $4.8 million, up from $3.6 million at the end of fourth-quarter fiscal 2023.

Net long-term debt stood at $116.4 million as of Jun 29, 2024, a decrease from $121.5 million a year earlier.

Management Guidance

Key Tronic projects first-quarter fiscal 2025 revenues of $140-$150 million and earnings per diluted share between 10 cents and 20 cents. This outlook assumes a continued recovery from the cybersecurity incident and a gradual improvement in production efficiencies, particularly in its Mexico operations. Management is optimistic about a strong pipeline of new businesses, driven by trends in on-shoring and dual sourcing of contract manufacturing, positioning it for growth in the upcoming fiscal year.

Other Developments

In the fiscal fourth quarter, Key Tronic continued to expand its customer base, securing new programs across various sectors, including industrial moving equipment, medical devices and consumer products. The company also emphasized its strategic shift toward on-shoring and dual sourcing, particularly in its Mexico, U.S. and Vietnam facilities. This trend is expected to support growth and enhance operational resilience.

In summary, while the cyberattack posed significant challenges, Key Tronic's proactive response and ongoing strategic initiatives position it for recovery and growth in the upcoming fiscal year. Investors should monitor the execution of the company's recovery plans and the realization of anticipated operational efficiencies.

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The fiscal fourth-quarter results were heavily influenced by external disruptions, most notably a cyberattack that affected the company's operations in Mexico and the United States. The incident led to $2.3 million in additional expenses, including costs related to new IT infrastructure and continued wage payments during the disruption. However, management has noted that most of the unfulfilled orders are expected to be recovered in fiscal 2025.

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