Key Tronic Targets $8 Million in Labor Cost Cuts, Return to Profitability in 2027
Key Facts
Key Tronic said in its earnings statement issued on November 3 that measures to streamline its U.S. workforce are expected to reduce labor costs by about $8 million annually when complete. Management is targeting revenue growth and a return to profitability in the second half of fiscal 2027, but said it must first address near-term liquidity challenges. The announcement came as the company reported a net loss of $7.5 million in the first quarter of fiscal 2027, ended September 26, compared with a loss of $2.3 million a year earlier. Management said: "We expect revenue growth and a return to profitability in the second half of fiscal 2027." The target sets a timeline for the recovery the company is banking on, while first-quarter results show continued operating and financing pressures.
Revenue was $98.7 million in the first quarter, compared with $98.8 million in the same period of the previous fiscal year. The company said supply-chain financing constraints delayed about $18 million in shipments during the quarter, most of them from Mexico and the United States. Production delays, along with higher material costs, drove the gross margin down to 2.5% from 8.4% a year earlier. Key Tronic also attributed the pressure to excess labor costs and operational inefficiencies at its facilities in Mexico and the United States. These pressures meant that stable revenue compared with the prior year did not prevent a deterioration in quarterly profitability.
The company said on its earnings call that about $6 million in inventory sales made no contribution to margin, and manufacturing cost variances added $4.7 million to the cost of goods sold. Bad-debt write-offs of about $0.5 million also weighed on results, while a $3.2 million insurance recovery related to replacing a facility roof in Mississippi eased some of the pressure. These items are consistent with the sharp decline in the margin the company recorded during the quarter. The loss was $0.69 per share, compared with $0.21 per share in the corresponding quarter of fiscal 2026. The comparison shows that weaker profitability was tied to higher production costs and expenses, not solely to a significant decline in quarterly revenue.
By contrast, the backlog totaled $245.9 million in the first quarter of fiscal 2027, up 76% from the same period a year earlier. The company cautioned that the value of its backlog does not necessarily represent future sales, an important caveat when reading the figure as an indicator of demand. It also announced new program wins in utility energy management, sustainable waste management, data centers, construction and defense technology. The company said these programs represent potential annual revenue of more than $60 million. The backlog and new programs offer support for the revenue growth outlook, while the timing of their conversion into production and shipments remains a factor in the recovery.
The results follow a difficult fiscal 2026, in which Key Tronic recorded an annual net loss of $47.8 million, compared with a loss of $8.3 million in fiscal 2025. In the fourth quarter of fiscal 2026, revenue was $102 million, up from $89.6 million in the previous quarter, but below $110.5 million in the same period of fiscal 2025. The company had said in its annual report that it had total borrowing capacity of about $16.5 million as of June 27, 2026, subject to loan agreement restrictions, and that it believed available liquidity sources were sufficient for working and fixed capital requirements for at least 12 months. It also reported that production in Vietnam more than doubled sequentially in the fourth quarter, driven by medical device and consumer product programs. These indicators provide context for the company's efforts to expand production and reduce costs, while liquidity remains a constraint in management's statements.
Key Tronic did not provide revenue or earnings guidance for the second quarter of fiscal 2027, citing uncertainty over the timing of new program ramp-ups, economic ambiguity and current capital constraints. It also described the first-quarter financial statements as preliminary and subject to change, with its independent auditor yet to complete review procedures. The stock closed at $2.06 on November 3, down 0.48% in regular trading, then fell a further 4.85% after the close to $1.96, according to Investing.com. These moves keep investors focused on the company's ability to convert orders into shipments while easing financing and production bottlenecks. The recording and presentation of the first-quarter earnings call are scheduled to be available on the company's investor relations website.