On Thursday, B.Riley Securities adjusted its stock price target on Kimball Electronics (NASDAQ:KE), reducing it to $29.00 from the previous $30.00, while maintaining a "Buy" rating. The adjustment came after the company's shares fell by 10.6% on Wednesday, as opposed to a 0.5% decline in the R2K index following the morning release of its fourth-quarter earnings for fiscal year 2024, which ended in June.
Despite the revenue of $430 million and EBITDA of $32 million surpassing the firm's estimates of $429 million and $31 million respectively, Kimball Electronics disclosed a second significant program loss in the automotive sector, similar to the previous year, each not due to the company's fault but still impactful.
Kimball Electronics is in the process of recovering from product recalls related to Philips CPAP ventilators and has secured a role as the sole supplier for respiratory care final assembly and higher-level assembly business for Philips, expected to commence in calendar year 2025. This new work is projected to enhance the financial results for fiscal year 2026.
However, the loss of a major braking system program by one of Kimball's top three tier 1 automotive customers this summer has created an approximately $100 million revenue shortfall. The company anticipates that its strong relationship with customers will help mitigate the impact through the launch of a new braking program at its facility in Romania.
Despite the challenges, the company provided guidance for fiscal year 2025, which includes projected revenue between $1,440 million and $1,540 million, representing an 11% year-over-year decrease at the midpoint. The guidance reflects the difficult conditions in the Electronic Manufacturing Services (EMS) industry, characterized by weak demand across all verticals and geographies.
Kimball Electronics, however, reported a strong free cash flow of $39 million in the second quarter, attributed to operating income supported by a reduction in working capital. The company has been working on inventory normalization, now reporting 84 days of inventory outstanding, and anticipates further working capital contraction until growth resumes.
The balance sheet has been strengthened following the completion of the divestiture of its automation, test, and measurement business, which brought in $24 million in cash and reduced the company's net leverage to under 2 times at the end of fiscal 2024. B. Riley Securities served as the exclusive financial advisor to Kimball Electronics in this transaction.
In other recent news, Kimball Electronics, a global provider of electronic manufacturing services, has finalized the divestiture of its automation, test, and measurement business. This strategic move is intended to enhance the company's focus on its core EMS operations.
Despite a 13% decrease in Q4 net sales across all sectors, the company remains committed to cost management and positive cash flow generation. The company is also exploring growth opportunities in the medical sector and new geographical markets.
For the fiscal year 2025, Kimball Electronics projects net sales to be between $1.440 billion and $1.540 billion. The company anticipates an 8% to 14% decrease in net sales compared to fiscal 2024, with adjusted operating income projected to be between 4% and 4.5% of net sales. Despite the challenging environment, the company remains optimistic about its future growth.
InvestingPro Insights
As Kimball Electronics (NASDAQ:KE) navigates through its recent challenges and market adjustments, InvestingPro data and tips provide a deeper insight into the company's current financial health and stock performance. According to InvestingPro, the company's market capitalization stands at $454.61 million, with a P/E ratio of 21.8 reflecting investor expectations about future earnings. Notably, the stock appears to be trading at a low revenue valuation multiple, with a Price/Book ratio as of the last twelve months of Q4 2024 at just 0.84, suggesting that the stock may be undervalued relative to its assets.
Moreover, InvestingPro Tips highlight that Kimball Electronics is currently trading near its 52-week low and has experienced significant price declines over the last month and year-to-date, with a one-year price total return of -33.58%. This could potentially signal a buying opportunity for investors, as analysts predict the company will be profitable this year. Despite weak gross profit margins of 8.18% in the last twelve months as of Q4 2024, the company has maintained a solid liquidity position, with liquid assets exceeding short-term obligations.
For investors seeking more comprehensive analysis, additional InvestingPro Tips for Kimball Electronics can be found at https://www.investing.com/pro/KE, offering further insights that could inform investment decisions.
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