Kimball Electronics, Inc. (KE) is a global, multifaceted manufacturing solutions provider that has established itself as a leader in the electronics manufacturing services (EMS) industry. With a diverse portfolio spanning the automotive, medical, and industrial end markets, the company has demonstrated its ability to adapt to changing market conditions and deliver innovative solutions to its customers.

Business Overview and History

Kimball Electronics was founded in 1961 and is headquartered in Jasper, Indiana. The company started as a manufacturer of electronic components and assemblies, primarily serving the automotive and industrial markets. Over the decades, Kimball Electronics has transformed itself into a global, multifaceted manufacturing solutions provider, offering a wide range of services including engineering, supply chain support, and contract manufacturing for electronic assemblies, components, medical devices, drug delivery solutions, and precision molded plastics.

In the early years, Kimball Electronics established itself as a reliable supplier of durable electronics, building a reputation for quality and innovation. The company steadily expanded its customer base and geographic reach, opening facilities in the United States, Mexico, China, and other locations to better serve its global client base. This diversification helped Kimball Electronics weather various economic cycles and challenges faced by the manufacturing industry.

One key milestone for the company came in the early 2000s when it began offering contract manufacturing services beyond just electronics, adding capabilities in areas like non-electronic components, medical devices, and precision molded plastics. This expanded service offering allowed Kimball Electronics to become a more comprehensive manufacturing solutions provider, increasingly serving the medical and industrial markets in addition to automotive.

Over the years, Kimball Electronics has faced various challenges common to the contract manufacturing industry, such as pricing pressures, supply chain disruptions, and customer program changes. The company has navigated these obstacles through continuous improvement initiatives, strategic investments, and a relentless focus on customer service. Kimball Electronics has been recognized multiple times by industry publications like CIRCUITS ASSEMBLY for its excellent quality, reliability, and innovative service. In 2024, the company was honored by CIRCUITS ASSEMBLY with the Highest Overall Customer Ratings in seven service categories.

The company currently operates manufacturing facilities in the United States, Mexico, Poland, Thailand, China, and the Netherlands, allowing it to leverage its diverse talent pool and production capabilities to meet the varying needs of its diverse customer base.

Financials

Kimball Electronics has demonstrated a strong financial profile, with a current ratio of 2.27 and a debt-to-equity ratio of 0.38 as of December 31, 2024. The company's return on assets (ROA) and return on equity (ROE) for the fiscal year 2024 were 0.75% and 1.49%, respectively, indicating efficient asset utilization and effective leverage management.

In the most recent fiscal year 2024, Kimball Electronics reported revenue of $1.71 billion and net income of $20.51 million, reflecting the company's ability to navigate challenging market conditions. The company's operating cash flow and free cash flow for the same period were $73.22 million and $26.18 million, respectively, highlighting its strong liquidity position and cash generation capabilities.

For the second quarter of fiscal year 2025, Kimball Electronics reported quarterly revenue of $357.39 million, representing a 15% year-over-year decrease. Quarterly net income stood at $3.43 million, with quarterly operating cash flow of $29.5 million.

Segmental Performance and Diversification

Kimball Electronics' diversified business model has been a key driver of its success, as it has enabled the company to mitigate risks and capitalize on growth opportunities across different end markets.

Automotive Segment

The automotive segment accounted for 52% of the company's total net sales in the second quarter and first half of fiscal year 2025. This segment has been a strong performer, particularly in the Chinese market, where Kimball Electronics has established a significant presence with local original equipment manufacturers (OEMs). However, the company has also faced challenges in North America and Europe, where reduced demand and the wind-down of a major electronic brake program have impacted this segment. Sales in this vertical decreased 4% quarter-over-quarter and 8% year-to-date, as improvements in demand in China helped to partially offset lower demand in North America and Europe, as well as the loss of a major automotive program unrelated to Kimball's workmanship, quality, or production capabilities.

Medical Segment

The medical segment represented 24% of total net sales in the second quarter and first half of fiscal year 2025. Kimball Electronics has experienced a 22% quarter-over-quarter decline and a 17% year-to-date decline in this segment, primarily due to the adverse impact of an FDA recall on a major customer's program and the wind-down of other programs. Despite these challenges, the company remains optimistic about the long-term growth prospects in the medical market, particularly in areas such as higher-level assemblies, finished medical devices, and drug delivery solutions.

Industrial Segment

The industrial segment accounted for 23% of total net sales in the second quarter and 24% in the first half of fiscal year 2025. This segment has faced headwinds, with a 29% quarter-over-quarter decline and a 25% year-to-date decline. The sale of the GES business accounted for approximately one-third of the decline, with the remaining decreases related to reduced demand in smart metering programs, climate controls, and public safety. Kimball Electronics is actively exploring opportunities to leverage its capabilities and diversify its industrial customer base.

Operational Initiatives and Restructuring

To navigate the sustained period of declining customer demand, Kimball Electronics has undertaken a series of operational initiatives and restructuring efforts. The company has focused on aligning its cost structure with the current market conditions, including resizing its workforce and implementing specific cost actions. Additionally, Kimball Electronics announced the closure of its Tampa, Florida facility, with the majority of the production activities being transferred to its other North American facilities, primarily its expanded facility in Mexico and the Jasper, Indiana location.

These strategic moves are designed to improve the company's operational efficiency, streamline its global footprint, and enhance its ability to serve its customers effectively. Kimball Electronics expects to incur approximately $6.5 million to $8.5 million in total exit costs related to the Tampa facility closure, most of which are anticipated to be cash expenditures incurred over the remainder of fiscal year 2025. The company expects the proceeds from the sale of the property to exceed the exit cost.

In the second quarter of fiscal year 2025, Kimball Electronics recorded restructuring expenses of $4.7 million related to employee-related costs and the planned closure of the Tampa facility. For the first half of the fiscal year, restructuring expenses totaled $7.0 million.

Outlook and Growth Opportunities

Kimball Electronics has revised its fiscal year 2025 guidance, reflecting the sustained period of declining customer demand. The company now expects net sales to be in the range of $1.4 billion to $1.44 billion, down from the previous guidance of $1.44 billion to $1.554 billion. Adjusted operating income is now estimated at 3.4% to 3.6% of net sales, compared to the previous guidance of 4% to 4.5% of net sales. The outlook for capital expenditures remains unchanged at $40 million to $50 million.

Despite the near-term challenges, the company remains optimistic about its long-term growth prospects, particularly in the medical and industrial sectors. According to New Venture Research, the worldwide assembly market for electronics products is projected to grow at a CAGR of 4.6% over the next five years, with the EMS industry also expected to grow at a CAGR of 4.6%.

In the medical segment, Kimball Electronics is focused on expanding its capabilities as a contract manufacturing organization (CMO), leveraging its expertise in areas such as precision injected molded plastics, complete device assembly, and cold chain management. The company believes these capabilities, combined with the industry's growth trends driven by an aging population, increased access to healthcare, and the rise of connected drug delivery systems, present significant opportunities for Kimball Electronics to increase its prominence as a trusted CMO partner.

In the industrial segment, the company is exploring opportunities to diversify its customer base and target emerging areas that align with its manufacturing expertise, such as the Internet of Things (IoT) and industrial automation. Kimball Electronics is also closely monitoring the potential impact of tariffs and trade policies on its operations, particularly in its Mexico facility, and is actively working with its customers to develop solutions that mitigate any adverse effects.

Liquidity

Kimball Electronics maintains a strong liquidity position, as evidenced by its robust operating cash flow and free cash flow figures. The company's current ratio of 2.27 and quick ratio of 1.29 indicate a healthy ability to meet short-term obligations, while its debt-to-equity ratio of 0.38 suggests a conservative approach to leverage. As of December 31, 2024, Kimball Electronics had $53.87 million in cash and cash equivalents and maintained a $300 million primary credit facility, of which $226.4 million was unused.

These metrics, combined with the company's ongoing efforts to optimize its cost structure and operational efficiency, provide Kimball Electronics with the financial flexibility to navigate current market challenges and invest in future growth opportunities. The company's principal sources of liquidity are expected to be sufficient to meet its working capital and other operating needs for at least the next 12 months.

Conclusion

Kimball Electronics has demonstrated its ability to navigate the challenges of the current market environment, leveraging its diversified business model, operational initiatives, and strategic focus on growth opportunities. Despite the near-term headwinds, the company's strong financial position, commitment to innovation, and focus on serving its customers' evolving needs position it well to capitalize on future growth prospects in the automotive, medical, and industrial sectors.

The company's core competency in producing durable electronics, combined with its reputation for quality and reliability, provides a solid foundation for future growth. Kimball Electronics' unique market position between smaller, regional players and larger, global competitors allows it to compete for both high-volume and lower-volume projects, further enhancing its market versatility.

As Kimball Electronics continues to adapt and expand its capabilities, investors may find the company's long-term growth story compelling, particularly given the projected growth in the worldwide assembly market for electronics products and the EMS industry. However, the company will need to successfully navigate the current challenges, including declining customer demand and the restructuring of its operations, to fully capitalize on these long-term opportunities.