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Key Tronic Gains Despite Wider Y/Y Q2 Loss as Restructuring Takes Hold
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Shares of Key Tronic Corporation (KTCC - Free Report) have risen 2% since reporting results for the second quarter of fiscal 2026. This compares with the S&P 500 index’s 3.8% decline over the same time frame. Over the past month, the stock has gained 9.6% compared with the S&P 500’s 1.1% return.
Key Tronic’s most recent results cover the second quarter of fiscal 2026, ended Dec. 27, 2025. Revenues declined 15% to $96.3 million from $113.9 million in the year-ago quarter. The company cited reduced demand from a long-standing customer, the transition of an end-of-life program and delays in program launches as primary reasons behind the decline.
For the first six months of fiscal 2026, revenues totaled $195.1 million, down from $245.4 million in the comparable prior-year period. On the bottom line, Key Tronic reported a net loss of $8.6 million, or 79 cents per share, compared with a net loss of $4.9 million, or 46 cents per share, a year earlier. Excluding significant restructuring-related charges, adjusted results improved meaningfully, with adjusted net income at breakeven against an adjusted loss of 38 cents per share in the prior-year quarter.
Key Tronic Corporation Price, Consensus and EPS Surprise
Profitability metrics were heavily affected by restructuring actions in the quarter. The gross margin fell to 0.6% from 6.8% in the prior-year period, while the operating margin deteriorated to negative 10.7% from negative 1%. Management emphasized that these declines were led by $10.5 million in charges related to severance, inventory write-offs and the wind-down of manufacturing operations in China.
On an adjusted basis that excludes these items, the gross margin improved to 7.9% from 6.8% a year ago, highlighting underlying operational progress despite lower volumes. The cash flow from operations was a notable positive, reaching $6.3 million from $1.5 million in the year-ago quarter, enabling the company to reduce debt by $13.4 million year over year. Inventory levels declined about 12% from a year ago, and accounts receivable days sales outstanding improved to 77 days from 99 days, indicating tighter working capital management.
Management Commentary
Management framed the quarter as a transitional period focused on repositioning the company’s manufacturing footprint for long-term growth. President and CEO Brett Larsen highlighted ongoing efforts to help customers manage macroeconomic uncertainty and tariff volatility by offering flexible manufacturing options across the United States, Mexico and Vietnam.
Executives reiterated confidence that recent investments in the U.S. and Vietnam facilities, along with cost reductions in Mexico, will strengthen competitiveness and support a return to profitability by the end of fiscal 2026. Management also pointed to program wins in automotive technology, pest control and industrial equipment as indicators of growth potential, even as some customers delayed ramps due to economic and geopolitical uncertainty.
Factors Influencing Headline Numbers
Several factors weighed on the reported results. The most significant was the decision to wind down manufacturing operations at the company’s China facility, a move driven by geopolitical tensions, tariffs and rising costs. This action, combined with workforce reductions in Mexico, led to substantial one-time charges that compressed reported margins and widened net losses.
Additionally, lower production volumes, holiday-related downtime and mix changes among customer programs contributed to margin pressure. These headwinds were partially offset by increased demand from certain long-standing customers, ongoing ramps of newly won programs and the expansion of a consigned materials manufacturing model, which management believes has the potential to improve margins as scale builds.
Guidance
Due to continued uncertainty around the timing of new program ramps and broader macroeconomic conditions, management declined to issue revenue or earnings guidance for the third quarter of fiscal 2026. However, executives reiterated expectations that operational efficiencies, cost savings from restructuring and gradual revenue recovery could support a return to profitability by the end of fiscal 2026, assuming improved volume utilization across facilities.
Other Developments
During the quarter, Key Tronic undertook significant business restructuring. The company initiated a wind-down of its China manufacturing operations, refocusing its presence there on sourcing and procurement, and continued substantial workforce reductions in Mexico. These actions are expected to generate estimated savings of $1.2 million and $1.5 million per quarter, respectively, once fully implemented, and to shift a greater share of production to expanding facilities in the United States and Vietnam.
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Key Tronic Gains Despite Wider Y/Y Q2 Loss as Restructuring Takes Hold
Shares of Key Tronic Corporation (KTCC - Free Report) have risen 2% since reporting results for the second quarter of fiscal 2026. This compares with the S&P 500 index’s 3.8% decline over the same time frame. Over the past month, the stock has gained 9.6% compared with the S&P 500’s 1.1% return.
Key Tronic’s most recent results cover the second quarter of fiscal 2026, ended Dec. 27, 2025. Revenues declined 15% to $96.3 million from $113.9 million in the year-ago quarter. The company cited reduced demand from a long-standing customer, the transition of an end-of-life program and delays in program launches as primary reasons behind the decline.
For the first six months of fiscal 2026, revenues totaled $195.1 million, down from $245.4 million in the comparable prior-year period. On the bottom line, Key Tronic reported a net loss of $8.6 million, or 79 cents per share, compared with a net loss of $4.9 million, or 46 cents per share, a year earlier. Excluding significant restructuring-related charges, adjusted results improved meaningfully, with adjusted net income at breakeven against an adjusted loss of 38 cents per share in the prior-year quarter.
Key Tronic Corporation Price, Consensus and EPS Surprise
Key Tronic Corporation price-consensus-eps-surprise-chart | Key Tronic Corporation Quote
Other Key Business Metrics
Profitability metrics were heavily affected by restructuring actions in the quarter. The gross margin fell to 0.6% from 6.8% in the prior-year period, while the operating margin deteriorated to negative 10.7% from negative 1%. Management emphasized that these declines were led by $10.5 million in charges related to severance, inventory write-offs and the wind-down of manufacturing operations in China.
On an adjusted basis that excludes these items, the gross margin improved to 7.9% from 6.8% a year ago, highlighting underlying operational progress despite lower volumes. The cash flow from operations was a notable positive, reaching $6.3 million from $1.5 million in the year-ago quarter, enabling the company to reduce debt by $13.4 million year over year. Inventory levels declined about 12% from a year ago, and accounts receivable days sales outstanding improved to 77 days from 99 days, indicating tighter working capital management.
Management Commentary
Management framed the quarter as a transitional period focused on repositioning the company’s manufacturing footprint for long-term growth. President and CEO Brett Larsen highlighted ongoing efforts to help customers manage macroeconomic uncertainty and tariff volatility by offering flexible manufacturing options across the United States, Mexico and Vietnam.
Executives reiterated confidence that recent investments in the U.S. and Vietnam facilities, along with cost reductions in Mexico, will strengthen competitiveness and support a return to profitability by the end of fiscal 2026. Management also pointed to program wins in automotive technology, pest control and industrial equipment as indicators of growth potential, even as some customers delayed ramps due to economic and geopolitical uncertainty.
Factors Influencing Headline Numbers
Several factors weighed on the reported results. The most significant was the decision to wind down manufacturing operations at the company’s China facility, a move driven by geopolitical tensions, tariffs and rising costs. This action, combined with workforce reductions in Mexico, led to substantial one-time charges that compressed reported margins and widened net losses.
Additionally, lower production volumes, holiday-related downtime and mix changes among customer programs contributed to margin pressure. These headwinds were partially offset by increased demand from certain long-standing customers, ongoing ramps of newly won programs and the expansion of a consigned materials manufacturing model, which management believes has the potential to improve margins as scale builds.
Guidance
Due to continued uncertainty around the timing of new program ramps and broader macroeconomic conditions, management declined to issue revenue or earnings guidance for the third quarter of fiscal 2026. However, executives reiterated expectations that operational efficiencies, cost savings from restructuring and gradual revenue recovery could support a return to profitability by the end of fiscal 2026, assuming improved volume utilization across facilities.
Other Developments
During the quarter, Key Tronic undertook significant business restructuring. The company initiated a wind-down of its China manufacturing operations, refocusing its presence there on sourcing and procurement, and continued substantial workforce reductions in Mexico. These actions are expected to generate estimated savings of $1.2 million and $1.5 million per quarter, respectively, once fully implemented, and to shift a greater share of production to expanding facilities in the United States and Vietnam.