KEY TRONIC CORP

KEY TRONIC CORP Annual Report Summary - Plain English Edition

Hey there! Let’s break down how Key Tronic Corp did this past year and whether it’s worth your attention as a potential investment.

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1. What They Do (And How It Went)

Key Tronic makes electronic parts like keyboards, circuit boards, and sensors for industries like healthcare, automotive, and industrial equipment. They’re a behind-the-scenes supplier for bigger brands, with factories in the U.S., Mexico, China, and Vietnam.

New this year:

• Landed contracts in pest control, personal protection gear, and automotive tech.
• Announced a major consignment deal with a data processing company (details below).
• Revenue recognition methods:
  • Finished products: Revenue at shipment.
  • Engineering services: Revenue as projects progress.
  • Scrap sales: Revenue at sale/shipment.

The company didn’t provide specifics about the consignment deal’s timeline or financial impact beyond mentioning a 2026 target.

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2. Money Talk: Growth or Slowdown?

• Revenue: Dropped 17.5% to $467.9 million (from $566.9M last year).
• Profit/Loss: Swung to an $8.3M loss (from a $15M profit last year).
• Why the drop?
  • Tariffs froze customer orders.
  • Lost $48M in scrap/component sales as old programs ended.
• Costs:
  • R&D spending up 10% to $9.2M.
  • Admin/marketing costs up 6% to $26.7M.

Takeaway: Sales shrank, costs rose, and profits vanished.

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3. Big Wins vs. Tough Spots

Wins:

• New projects in air purification, medical tech, and utility inspection gear.
• Opened a Mexico factory to cut costs and avoid tariffs.
• Consignment deal could add $20M+ in future sales (but no guarantees).

Challenges:

• Top 5 clients make up 48% of sales (one client alone is 25%).
• Lost $48M in scrap sales.
• 30% of manufacturing in China—tariffs or shutdowns could hurt.

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4. Financial Health Check

• Cash: Only $25M left in their credit line (down from $40M).
• Debt: $98.9M (down 15% from last year).
• Taxes: Planning to bring $2.9M back from China eventually (no details on timing).
• Inventory Risks: Wrote down $3.5M in unpaid bills (up 21% from last year).

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5. Risks to Watch

• Tariff Troubles: Trade wars could delay projects.
• Customer Concentration: Losing one big client = 25% revenue gone.
• Consignment Gamble: If the new deal stumbles, growth plans suffer.
• Rising Costs: R&D and admin costs grew despite layoffs.

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6. What’s Next?

• Betting on the consignment deal to boost 2026 sales.
• Shifting manufacturing closer to customers (“near-shoring”) to avoid tariffs.
• Warning: The company calls its forecasts “best guesses,” not promises.

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The Bottom Line for Investors

The bad news: Key Tronic had a rough year with sales down 17.5%, a swing to losses, and heavy reliance on a few big clients. Supply chain chaos and tariffs hit hard.

The hopeful signs: They’re cutting debt, automating factories ($4.2M invested), and diversifying into new industries like medical tech. The consignment deal could be a lifeline—if it works.

Key questions to ask:

1. Will tariffs ease or get worse?
2. Can they reduce dependence on their top 5 clients?
3. Will the consignment deal deliver $20M+ as hoped?

High risk, potential reward: This looks like a turnaround bet. Only consider if you’re comfortable with volatility and uncertainty.

Not financial advice. Do your own research or consult a pro before investing.

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Transparency note: Key Tronic provided limited details about some initiatives (like the consignment deal’s specifics), which investors should factor into their analysis.