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Global electronics contract manufacturer Kimball Electronics (NYSE:KE) missed analysts’ expectations in Q2 CY2024, with revenue down 13.3% year on year to $430.2 million. The company’s full-year revenue guidance of $1.49 billion at the midpoint also came in 16.9% below analysts’ estimates. It made a GAAP profit of $0.30 per share, down from its profit of $0.76 per share in the same quarter last year.
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Kimball Electronics (KE) Q2 CY2024 Highlights:
- Revenue: $430.2 million vs analyst estimates of $446.2 million (3.6% miss)
- EPS: $0.30 vs analyst expectations of $0.43 (29.6% miss)
- Management’s revenue guidance for the upcoming financial year 2025 is $1.49 billion at the midpoint, missing analyst estimates by 16.9% and implying -13.1% growth (vs -5.3% in FY2024)
- Gross Margin (GAAP): 8.5%, down from 10% in the same quarter last year
- Market Capitalization: $508.3 million
Founded in 1961, Kimball Electronics (NYSE:KE) is a global contract manufacturer specializing in electronics and manufacturing solutions for automotive, medical, and industrial markets.
Electrical SystemsLike many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
Sales GrowthReviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Unfortunately, Kimball Electronics’s 6.9% annualized revenue growth over the last five years was mediocre. This shows it couldn’t expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Kimball Electronics’s annualized revenue growth of 12.7% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
This quarter, Kimball Electronics missed Wall Street’s estimates and reported a rather uninspiring 13.3% year-on-year revenue decline, generating $430.2 million of revenue. Looking ahead, Wall Street expects sales to grow 2.6% over the next 12 months, an acceleration from this quarter.
Operating Margin Kimball Electronics was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 4.5%. This result isn’t too surprising given its low gross margin as a starting point.
Analyzing the trend in its profitability, Kimball Electronics’s annual operating margin might have seen some fluctuations but has generally stayed the same over the last five years, meaning it will take a fundamental shift in the business to change.
In Q2, Kimball Electronics generated an operating profit margin of 4.6%, down 1.9 percentage points year on year. Since Kimball Electronics’s operating margin decreased more than its gross margin, we can assume the company was recently less efficient because expenses such as sales, marketing, R&D, and administrative overhead increased.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.
Sadly for Kimball Electronics, its EPS declined by 17.6% annually over the last five years while its revenue grew by 6.9%. However, its operating margin didn’t change during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. Kimball Electronics’s two-year annual EPS declines of 18.8% were bad and lower than its 12.7% two-year revenue growth.
In Q2, Kimball Electronics reported EPS at $0.30, down from $0.76 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Kimball Electronics to grow its earnings. Analysts are projecting its EPS of $0.82 in the last year to climb by 117% to $1.77.
Key Takeaways from Kimball Electronics’s Q2 Results We struggled to find many strong positives in these results. Its full-year revenue guidance missed and its revenue fell short of Wall Street’s estimates. Overall, this was a mediocre quarter. The stock remained flat at $20.44 immediately following the results.
