Kimball Electronics Q4 Earnings Call Highlights

Key Points

• Fourth-quarter sales declined 2% year over year to $371.6 million, but rose 5% sequentially as all three operating verticals improved. Gross margin increased to 8.9%, while operating cash flow reached $42.4 million and helped reduce debt to its lowest level in more than four years.
• Medical growth is expected to offset ongoing automotive and industrial pressure. Medical sales rose 1% year over year, while automotive fell 3% and industrial declined 5%; management expects automotive revenue to be roughly flat in fiscal 2027.
• Kimball forecast fiscal 2027 sales of $1.535 billion to $1.56 billion, including 3% to 5% organic growth and about $60 million from the Helvoet acquisition. Medical is projected to grow at a high-single-digit to low-double-digit rate and approach 35% of total sales as Helvoet and the Indianapolis CDMO facility ramp up.

Kimball Electronics NASDAQ: KE reported fourth-quarter fiscal 2026 sales of $371.6 million, down 2% from a year earlier but up 5% sequentially, as all three of its operating verticals increased from the prior quarter. The company said adjusted operating income of $18.1 million, or 4.9% of sales, exceeded its expectations, while operating cash flow helped reduce debt to its lowest level in more than four years.

Chief Executive Officer Ric Phillips said the company ended fiscal 2026 with a stabilizing base business and expects a return to organic sales growth in fiscal 2027. The outlook is expected to be led by medical operations, including the recently completed acquisition of Helvoet Polymer Technologies and continued investment in a medical facility in Indianapolis.

Fourth-Quarter Results and Cash Flow

Fourth-quarter gross margin was 8.9%, improving 90 basis points from 8.0% a year earlier. Chief Financial Officer Jana Croom said favorable sales mix supported the improvement, partly offset by costs associated with ramping the Indianapolis medical contract development and manufacturing organization, or CDMO, facility.

Adjusted selling and administrative expenses increased by $4 million year over year to $14.8 million, reflecting growth investments including personnel and IT infrastructure. Adjusted operating income declined from $19.6 million, or 5.2% of sales, in the prior-year quarter.

Kimball reported net income of $8.5 million, or $0.35 per diluted share. Its adjusted result was a loss of $163,000, or $0.01 per diluted share, as the quarter’s effective tax rate rose to 67.8%. Croom said the tax rate was adversely affected by the resolution of two longstanding dividend withholding matters involving international tax authorities. The company expects its fiscal 2027 tax rate to be in the low 30% range.

Cash generated from operations totaled $42.4 million in the quarter, marking the company’s 10th consecutive quarter of positive operating cash flow. Cash conversion days improved to 82 days, the company’s best result in 17 quarters. However, Croom said the company expects some working-capital pressure in fiscal 2027 as customers seek higher inventory levels amid supply-chain disruptions and “golden screw” component shortages.

Cash and cash equivalents were $88.9 million at June 30, while borrowings totaled $116.6 million, down $46.4 million from the prior quarter and 21% from a year earlier. Short-term liquidity, including available credit capacity, was $411.3 million. The balance sheet figures did not include financing associated with the Helvoet acquisition, which closed July 1.

Medical Growth Offsets Automotive and Industrial Pressure

Medical sales were $109 million in the fourth quarter, up 1% year over year and representing 29% of total revenue. Phillips said the reported growth rate was affected by one-time customer inventory builds in the fourth quarter of fiscal 2025 related to a facility closure and transfer of work. After adjusting for those events, Croom said medical growth was closer to 10% year over year.

Medical demand was supported by surgical devices, in vitro diagnostics, patient monitoring and drug-delivery products. Phillips said the company expects growth across most medical categories in fiscal 2027, including respiratory care, surgical devices, diagnostics, imaging and drug delivery.

Automotive sales were $170 million, down 3% year over year, and accounted for 46% of company sales. Growth in Poland and Romania, driven by new steering and braking programs, as well as low-single-digit growth in China, was offset by lower North American demand tied largely to electric-vehicle programs. Steering programs represented about 70% of automotive revenue.

Phillips said automotive sales declined 7% for the full fiscal year, but consecutive 3% declines in the second half suggest stabilization. The company expects automotive revenue to be roughly flat in fiscal 2027. He said demand weakness reflects lower-than-anticipated volumes from EV programs rather than lost business, while European programs continue to ramp.

Industrial sales fell 5% to $93 million, primarily due to lower North American HVAC demand. Higher smart-meter sales in Europe partially offset the decline.

Fiscal 2027 Outlook and Helvoet Integration

Kimball forecast fiscal 2027 sales of $1.535 billion to $1.56 billion, representing growth of 7% to 9% from fiscal 2026. The outlook includes organic growth of 3% to 5% and approximately $60 million of revenue from Helvoet. Croom said foreign-exchange translation, particularly involving the euro and Indian rupee, affects the comparison with Helvoet’s prior revenue base.

• Medical organic growth is projected in the high-single-digit to low-double-digit range.
• Industrial growth is expected to align with the company average.
• Automotive revenue is expected to be approximately flat.
• Adjusted operating income is projected at 4.4% to 4.7% of sales.
• Capital expenditures are expected to total $50 million to $60 million.

Management expects medical to approach 35% of total company sales in fiscal 2027. Phillips said Helvoet expands the company’s medical CDMO capabilities, including co-development work, prompting Kimball to more explicitly use the CDMO designation going forward.

The Indianapolis facility is expected to begin qualifying certain manufacturing processes in the fall, with early production planned by the end of calendar 2026. Phillips said initial production will primarily involve transferred work from the existing Indianapolis campus, while new programs will require more time to ramp. Croom said the facility’s operating costs will continue to create a drag until revenue reaches sufficient scale, though Helvoet’s accretive contribution is expected to roughly offset that impact in fiscal 2027.

Management said Helvoet integration has progressed as planned, with customer interest focused on the combined company’s facilities in Tilburg, Pune and Indianapolis. Kimball intends to maintain Helvoet’s existing footprint and is prioritizing potential revenue synergies, including cross-selling opportunities and programs that combine the two companies’ capabilities.

Croom said the company is targeting leverage of roughly 1.5 times EBITDA over time while retaining capacity for organic capital spending, share repurchases and potential future acquisitions. Kimball repurchased 83,000 shares for $2.1 million in the fourth quarter and had $24.4 million remaining under its authorization at fiscal year-end.

About Kimball Electronics (NASDAQ:KE)

Kimball Electronics, Inc is a global electronic manufacturing services (EMS) provider headquartered in Jasper, Tennessee. The company offers end-to-end product design and manufacturing solutions, serving original equipment manufacturers (OEMs) across a range of industries. With a focus on precision electronics and complex assemblies, Kimball Electronics leverages advanced engineering capabilities, quality systems and lean production methods to support customers from product concept through full-scale production.

The company's core offerings include printed circuit board assembly (PCBA), system integration, tooling and test fixture development, and aftermarket services.

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