Significant Cost Reduction Initiatives in China and Mexico; Continued Program Wins; Positive Cash Flow from Operations
SPOKANE VALLEY, Wash. – Key Tronic Corporation (Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), announced its results for the quarter ended December 27, 2025.
For the second quarter of fiscal year 2026, Key Tronic reported total revenue of $96.3 million, compared to $113.9 million in the same period of fiscal year 2025. The reported revenue for the second quarter of fiscal year 2026 was adversely impacted by reduced demand from a longstanding customer, the transition of an end of life program and delays in new program launches as we believe customers continue to face uncertainties in the global economy and volatile trade policies. These decreases were also partially offset by an increase in demand from other longstanding customers and certain program ramps. Additionally, during the second quarter of fiscal year 2026, the Company continued ramping the consigned materials program that was previously announced. For the first six months of fiscal year 2026, total revenue was $195.1 million, compared to $245.4 million in the same period of fiscal year 2025.
The Company continued to prepare for anticipated long-term growth by executing its near-shoring and tariff mitigation strategies to reduce costs while maintaining the diversity and flexibility of its key locations and capabilities. During the quarter, Key Tronic initiated a wind-down of its manufacturing operations at its China based facility and instead intends to refocus operations in China on sourcing and procurement activities intended to support its remaining global locations. This initiative is expected to shift more production to the Company’s expanding facilities in the US and Vietnam. The wind-down is expected to be completed by the end of the current fiscal year, and is anticipated to save approximately $1.2 million per quarter following completion.
Key Tronic also further reduced its workforce in Mexico, which is expected to provide an additional approximate $1.5 million in quarterly savings, gradually, beginning in the third quarter. These strategic initiatives resulted in charges for severance, inventory write-offs and other related expenses of approximately $10.5 million for the second quarter of fiscal year 2026.
Total cash flow provided by operations for the second quarter of fiscal year 2026 was approximately $6.3 million, as compared to $1.5 million for the same period of fiscal year 2025. The Company’s continuing ability to generate cash from operations has allowed it to reduce its debt year-over-year by approximately $13.4 million.
The closure of its China manufacturing facility and workforce reductions in Mexico had an adverse impact on Key Tronic’s margins. Gross margin was 0.6% and operating margin was (10.7)% in the second quarter of fiscal year 2026, compared to 6.8% and (1.0)%, respectively, in the same period of fiscal year 2025. Excluding the charges related to the China closure and Mexico workforce reductions, the adjusted gross margin was 7.9% for the second quarter of fiscal year 2026 compared to 6.8% in the same period of fiscal year 2025 . See “Non-GAAP Financial Measures,” below for additional information about adjusted gross margin.
The net loss was $(8.6) million or $(0.79) per share for the second quarter of fiscal year 2026, compared to net loss of $(4.9) million or $(0.46) per share for the same period of fiscal year 2025. For the first six months of fiscal year 2026, the net loss was $(10.8) million or $(1.00) per share, compared to $(3.8) million or $(0.35) per share for the same period of fiscal year 2025.
The adjusted net income was $0.0 million or $0.00 per share for the second quarter of fiscal year 2026, compared to adjusted net loss of $(4.1) million or $(0.38) per share for the same period of fiscal year 2025. For the first six months of fiscal year 2026, the adjusted net loss was $(1.1) million or $(0.10) per share, compared to adjusted net loss of $(1.3) million or $(0.12) per share for the same period of fiscal year 2025. See “Non-GAAP Financial Measures,” below for additional information about adjusted net income (loss) and adjusted net income (loss) per share.
“During the second quarter of fiscal 2026, we continued to provide our customers with options to better manage macroeconomic uncertainties and enhance our potential for profitable long-term growth,” said Brett Larsen, President and CEO. “Due to ongoing geopolitical tensions and tariff uncertainties, we chose to cease manufacturing operations at our China facility while maintaining a strategic sourcing presence, and continue to right-size our Mexico facility, while continuing to build out new production capacity in the US and Vietnam.”
“As part of our long term strategy, over the past 18 months, we have reduced our total headcount by approximately 40% in Mexico and have begun transferring production to the US and Vietnam. We are very excited about the recent investments made in the US and Vietnam to build out capacity and new capabilities to meet evolving customer demand. We continue to expect approximately half of our manufacturing to take place in our US and Vietnam facilities by the end of fiscal 2026.”
“During the second quarter of fiscal 2026, we won new programs in automotive technology, pest control and industrial equipment. While the uncertainty surrounding global tariffs and the macroeconomic outlook has continued to reduce demand from some longstanding customers and delayed some new program ramps in recent quarters, we expect to see our revenue gradually begin to rebound, improved operating efficiencies to take hold and a return to profitability by the end of fiscal 2026.”
The financial data presented for the second quarter of fiscal 2026 should be considered preliminary and could be subject to change, as the Company’s independent auditor has not completed their review procedures.
Business Outlook
Due to uncertainty in the timing of new program ramps in light of the continued macroeconomic uncertainty, Key Tronic will not be issuing revenue or earnings guidance for the third quarter of fiscal year 2026.
Conference Call
Key Tronic will host a conference call to discuss its financial results at 2:00 PM Pacific (5:00 PM Eastern) today. A broadcast of the conference call will be available at www.keytronic.com under “Investor Relations” or by calling 800-330-6710 or +1-213-279-1505 (Access Code: 5641933). The Company will also reference accompanying slides that can be viewed with the webcast at www.keytronic.com under “Investor Relations”. A replay will be available at www.keytronic.com under “Investor Relations”.
About Key Tronic
Key Tronic is a leading contract manufacturer offering value-added design, sourcing and manufacturing services from its facilities in the United States, Mexico, China and Vietnam. The Company provides its customers with full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, and worldwide distribution. Its customers include some of the world’s leading original equipment manufacturers. For more information about Key Tronic visit: www.keytronic.com
