Key Tronic’s Quarterly Loss Jumps to $7.5 Million as Margin Falls to 2.5%
Key Facts
Key Tronic reported results on November 3 for the first quarter of fiscal 2027, ended September 26, posting a net loss of $7.5 million, or $0.69 per share, compared with a loss of $2.3 million, or $0.21 per share, in the year-earlier period. The company’s shares closed at $1.46 in the November 4 session, after closing at $2.06 in the previous session, according to EL7 data. The electronics manufacturing services company said supply chain financing constraints delayed shipments worth about $18 million during the quarter. Meanwhile, backlog reached $245.9 million, up 76% year over year. The results show a gap between order growth and the ability to ship those orders and convert them into revenue and profit.
Revenue for the quarter was $98.7 million, compared with $98.8 million in the year-earlier quarter. Key Tronic said credit and liquidity constraints delayed shipments of nearly $18 million, most of them tied to manufacturing programs in Mexico and the United States. The delayed shipments show how financing difficulties limited the conversion of orders into recorded sales during the period. By contrast, backlog rose to $245.9 million from the year-earlier period in fiscal 2026, an increase of 76%. The backlog includes purchase orders for products the company expects to ship approximately over the following twelve months. The company cautioned, however, that backlog does not necessarily represent a reliable indicator of future sales.
Gross margin fell to 2.5% from 8.4% in the year-earlier period, reflecting production and cost pressures cited by the company. It said financing difficulties delayed production, while higher material costs increased expenses, and the resulting delays and costs led to excess labor and inefficiencies at facilities in Mexico and the United States. The company added that about $6 million in sales from inventory did not contribute to margin during the quarter. It also included manufacturing cost variances of $4.7 million in cost of goods sold rather than inventory, as required under U.S. accounting standards for inventory valuation. The margin decline coincided with the net loss widening to $7.5 million from $2.3 million in the comparable period.
Operating margin was negative 4.2%, compared with negative 0.6% in the first quarter of the previous fiscal year. Key Tronic attributed the decline to lower gross margin, as well as the write-off of about $0.5 million in bad debt. These factors were partly offset by an insurance recovery of $3.2 million related to replacing the roof at the company’s Mississippi facility. Elsewhere in the business, production revenue in Vietnam continued to grow, driven by medical device and consumer product programs. The company said its quarterly financial statements are preliminary and subject to change because its independent auditor has not completed review procedures.
The results follow an annual net loss of $47.8 million in fiscal 2026, compared with $8.3 million in fiscal 2025, according to the company’s annual report. The fiscal 2026 loss included a noncash tax valuation allowance of $28.4 million. In the fourth quarter of fiscal 2026, revenue was $102.0 million, up 14% from $89.6 million in the previous quarter, but below the $110.5 million reported in the comparable period of fiscal 2025. The company also reported total borrowing capacity of about $16.5 million on June 27, 2026, and $16.9 million on September 12, subject to the financing agreement’s covenant restrictions. This backdrop puts liquidity and financing constraints at the center of the challenges facing the company.
On growth, Key Tronic said it had won new programs in utility energy management, sustainable waste management, data centers, construction and defense technologies, with potential annual revenue exceeding $60 million. Management expects revenue growth and a return to profitability in the second half of fiscal 2027. It will not provide second-quarter revenue or earnings guidance, citing uncertainty around program launch timing, economic conditions and capital constraints. The company also said the reduction in its U.S. workforce is expected to lower labor costs by about $8 million annually when completed. With a revenue recovery expected, management anticipates margin growth in coming quarters.