Key Tronic Corporation reported a modestly lower revenue line in Q1 FY2025, with revenue of $131.6 million, down 6.4% year over year and 1.3% quarter over quarter. Management attributed the year-over-year revenue decline to customer-driven design and qualification delays on three programs, which temporarily trimmed revenue by approximately $9 million; two programs have since resumed shipments in Q2. Despite the revenue headwinds, the company delivered meaningful margin improvements driven by headcount reductions, a weaker Mexican peso, and supply chain improvements, culminating in gross margin of 10.1% and operating margin of 3.4% for the quarter. This margin expansion occurred even after a roughly $0.8 million write-down of capitalized variances, reflecting higher production costs embedded in older inventory. Net income reached $1.12 million ($0.10 per share), with adjusted net income of $1.2 million ($0.11 per share).
The balance sheet shows aggressive working-capital discipline: inventory declined by about $31 million (24%), current ratio improved to 2.6x, and total liabilities were cut by roughly $29.7 million (11%) year over year. Cash flow remained constructive, with operating cash flow of $9.95 million and free cash flow of $9.57 million in the quarter, supporting a modest cash balance of $6.56 million and a net debt position of approximately $106.18 million. Management signaled prudent capital allocation and reiterated a continued focus on returning capital efficiently, including potential debt refinancing to address the elevated cost of capital.
Looking ahead, management guided to Q2 revenue of $130–$140 million and net income of $0.05–$0.15 per diluted share, reflecting a pragmatic view of near-term seasonality and the continued ramp of new programs. The company intends to continue expanding capacity and capabilities in Vietnam and the United States, while selectively investing in production equipment and vertical capabilities. The long-run outlook remains constructive as global logistics constraints, nearshoring/onsourcing themes, and a diversified global footprint support a more favorable competitive position versus traditional China-centric outsourcing. Investors should monitor program ramp timing, currency hedges, balance-sheet refinancing progress, and the evolution of the Vietnam capacity contribution to growth.