Key Tronic Q3 Loss Narrows, Revenues Fall 21% Amid Tariff Turmoil

Shares of Key Tronic Corporation KTCC have lost 6.6% since reporting results for the third quarter of fiscal 2025. This compares to the S&P 500 index’s 0.1% decline over the same time frame. Over the past month, the stock has gained 0.4% compared with the S&P 500’s 6.6% growth.Revenue & Earnings OverviewFor the third quarter of fiscal 2025, Key Tronic reported total revenues of $112 million, a 21.3% decrease from $142.4 million in the prior-year quarter. The decline was primarily attributed to global tariff volatility, which drove up costs, disrupted production and dampened customer demand.The gross margin improved year over year to 7.7% from 5.7%, benefiting from ongoing cost-cutting efforts and workforce reductions. The operating margin was flat at -0.4%.The company posted a net loss of $0.6 million or 6 cents per share, an improvement from the $2.2 million or 21 cents per share loss reported a year ago. The adjusted net loss narrowed to $0.6 million or 5 cent per share from $2.2 million or 20 cents per share in the year-ago quarter.Key Tronic Corporation Price, Consensus and EPS Surprise  Key Tronic Corporation price-consensus-eps-surprise-chart | Key Tronic Corporation QuoteOperational Performance & Business MetricsDespite the revenue contraction, Key Tronic generated $10.1 million in operating cash flow in the first nine months of fiscal 2025, up from $6.1 million in the same period last year. Inventory levels declined 14% or $16 million year over year, aligning more closely with current revenue levels. The company also reduced total liabilities 14% or $34.3 million from the same quarter last year.Capital expenditure was approximately $3 million in the first nine months of fiscal 2025, with expectations for the year between $6 million and $8 million. These investments are largely tied to capacity expansions in Arkansas and Vietnam, which are intended to provide greater geographic flexibility amid tariff uncertainty.Management CommentaryCEO Brett Larsen and CFO Tony Voorhees emphasized that global tariff volatility, particularly regarding China components, created “hesitancy and business paralysis” among customers. However, the company remains optimistic about long-term growth. Management pointed to the streamlining of operations in Mexico, where wage inflation prompted structural changes, and to ongoing cost reductions across other facilities.Key Tronic is capitalizing on business wins. The company secured five notable contracts in the quarter, including a $12-million telecommunications program in Mexico, a $6-million pest-control device contract in Vietnam, a $7-million energy project in Arkansas, and a consumer product valued between $2 million and $5 million. Additionally, a $1-million design contract with production potential up to $15 million underscores the strategic role of the company's design capabilities in driving growth.A previously disclosed $60-million program is on track, with ramp-up expected to begin in the first quarter of fiscal 2026 and reach full run-rate within 12-18 months.Factors Behind the ResultsThe steep decline in revenues was led by reduced demand from existing customers, delayed production starts and customer over-inventorying. Tariff disruptions played central roles, particularly for China-manufactured components, prompting customers to reevaluate sourcing strategies. Some legacy programs ended due to obsolescence or strategic exits initiated by Key Tronic itself, in response to financial risk or difficulty managing certain accounts.On the positive side, the gross margin improved year over year, reflecting the benefits of past restructuring efforts. Management highlighted that with $20 million in incremental revenues, margins can exceed 10%, suggesting a rise from the 7.7% recorded in the third quarter of fiscal 2025, provided macroeconomic conditions remain stable.Other DevelopmentsThe company is moving ahead with capacity expansions. In Arkansas, KTCC plans to invest more than $28 million in a new manufacturing and R&D facility, which is projected to create more than 400 jobs over the next five years. In Vietnam, the company aims to more than double its current manufacturing footprint. These developments are expected to provide customers with alternatives to Chinese manufacturing and mitigate the risk of future tariff shocks.In summary, while Key Tronic continues to grapple with near-term headwinds, including falling revenues and macro uncertainties, it is simultaneously strengthening its cost base, expanding its footprint and diversifying its customer portfolio — moves that may pave the way for a return to profitability in the longer term.Research Chief Names "Single Best Pick to Double"From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Key Tronic Corporation (KTCC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks