Kimball Electronics, Inc. (Nasdaq: KE), a leading global
electronics manufacturing services provider of high-quality,
durable electronic products, today announced financial results for
its second quarter ended December 31, 2018.
|
Three Months Ended |
|
Six Months Ended |
|
December 31, |
|
December 31, |
(Amounts in Thousands,
except EPS) |
2018 (1) |
|
2017 |
|
2018 (1) |
|
2017 |
Net Sales |
$ |
284,149 |
|
|
$ |
258,151 |
|
|
$ |
549,769 |
|
|
$ |
511,355 |
|
Operating Income
(2) |
$ |
10,212 |
|
|
$ |
10,119 |
|
|
$ |
17,244 |
|
|
$ |
19,642 |
|
Adjusted Operating
Income (non-GAAP) (2) (3) |
$ |
10,212 |
|
|
$ |
10,119 |
|
|
$ |
17,152 |
|
|
$ |
19,642 |
|
Operating Income % |
3.6 |
% |
|
3.9 |
% |
|
3.1 |
% |
|
3.8 |
% |
Net Income (Loss) |
$ |
7,115 |
|
|
$ |
(8,347 |
) |
|
$ |
12,184 |
|
|
$ |
133 |
|
Adjusted Net Income
(non-GAAP) (3) |
$ |
6,864 |
|
|
$ |
8,233 |
|
|
$ |
11,863 |
|
|
$ |
16,713 |
|
Diluted EPS |
$ |
0.27 |
|
|
$ |
(0.31 |
) |
|
$ |
0.46 |
|
|
$ |
0.00 |
|
Adjusted Diluted EPS
(non-GAAP) (3) |
$ |
0.26 |
|
|
$ |
0.31 |
|
|
$ |
0.45 |
|
|
$ |
0.62 |
|
(1) As of the beginning of fiscal year 2019, the Company adopted
the new accounting standard on Revenue from Contracts with
Customers on a modified retrospective basis. For the three
months ended December 31, 2018, the adoption increased Net Sales
$6.0 million, Net Income increased $0.2 million, and Diluted EPS
was unchanged. For the six months ended December 31, 2018,
the adoption increased Net Sales $6.4 million, Net Income increased
$0.3 million, and Diluted EPS increased $0.01. The prior
periods were not restated.(2) Prior period amounts have been
restated to reflect the retrospective adoption of new accounting
guidance on improving the presentation of net periodic pension cost
and net periodic postretirement benefit cost.(3) A reconciliation
of GAAP and non-GAAP financial measures is included below.
Donald D. Charron, Chairman and Chief Executive Officer, stated,
“We achieved solid year-over-year organic growth in three of our
four end market verticals as the ramp-up of new program launches
helped to more than offset continued softness in certain other
programs primarily caused by global macro-economic conditions,
component shortages, and trade uncertainties.”
Mr. Charron continued, “We made good progress in optimizing our
core business and with the acquisition of GES, we took a
significant step in our strategy to diversify ourselves into a
multifaceted manufacturing solutions provider. We are
cautiously optimistic that our goal of 8% organic growth remains in
reach for fiscal year 2019, and we expect to meet our 4.5%
operating income goal for the second half of fiscal year 2019.”
Second Quarter Fiscal Year 2019 Overview:
• Consolidated net sales increased 10% compared to the second
quarter of fiscal year 2018. Net sales in the second quarter
were impacted by: ◦ The GES acquisition
increased net sales by 2%. ◦ Net sales increased
2% as a result of the adoption of new revenue recognition
accounting rules. ◦ Unfavorable foreign currency
movements decreased net sales by 1% compared to the prior year
second quarter. • The Romania facility improved its impact on
consolidated operating income percent by 30 basis points compared
to the prior year second quarter as its ramp-up progresses;
however, GES unfavorably impacted consolidated operating income
percent by 60 basis points, including 20 basis points resulting
from the amortization of acquired intangibles.• Other Income
(Expense), net includes interest expense of $1.1 million in the
current year quarter compared to $0.1 million in the prior year
quarter as a result of increased borrowings on the credit
facilities, in large part related to the financing of the GES
acquisition.• Adjusted Net Income and Adjusted Diluted EPS exclude
$16.6 million of provisional discrete tax expense for the three and
six months ended December 31, 2017 related to the U.S. Tax
Cuts and Jobs Act (“Tax Reform”) and a $0.3 million income tax
benefit for the three and six months ended December 31, 2018
from adjustments to the Tax Reform provisions prior to the end of
the measurement period. See below for additional information
and a reconciliation of non-GAAP financial measures.• Operating
activities provided cash of $5.6 million during the quarter, which
compares to cash provided by operating activities of $11.6 million
in the second quarter of fiscal year 2018.• Cash conversion days
(“CCD”) for the quarter ended December 31, 2018 were 76 days,
up from 60 days in the same quarter last year primarily related to
an increase in raw material inventories to maintain appropriate
buffer stock levels in the current tight supply environment.
CCD is calculated as the sum of days sales outstanding plus
contract asset days plus production days supply on hand less
accounts payable days.• $13.3 million was returned to Share Owners
during the quarter in the form of common stock repurchases.•
Investments in capital expenditures were $4.3 million and cash
payments, net of cash acquired, for the GES acquisition was $43.9
million during the quarter.• Cash and cash equivalents were $35.9
million and borrowings outstanding on credit facilities were $89.1
million at December 31, 2018.• Return on invested capital
(“ROIC”), calculated for the trailing twelve months, was 8.9% and
9.8% for the twelve months ended December 31, 2018 and 2017,
respectively (see reconciliation of non-GAAP financial measures for
ROIC calculation).
Net Sales by Vertical Market:
|
Three Months Ended |
|
|
|
December 31, |
|
|
(Amounts in
Millions) |
2018 |
|
2017 |
|
Percent Change |
Automotive |
$ |
112.4 |
|
|
$ |
116.4 |
|
|
(3 |
)% |
Medical |
85.7 |
|
|
72.9 |
|
|
18 |
% |
Industrial |
62.2 |
|
|
52.0 |
|
|
20 |
% |
Public Safety |
17.9 |
|
|
13.8 |
|
|
29 |
% |
Other |
5.9 |
|
|
3.1 |
|
|
92 |
% |
Total Net
Sales |
$ |
284.1 |
|
|
$ |
258.2 |
|
|
10 |
% |
Forward-Looking StatementsCertain statements
contained within this release are considered forward-looking under
the Private Securities Litigation Reform Act of 1995 and are
subject to risks and uncertainties including, but not limited to,
successful integration of acquisitions and new operations, global
economic conditions, geopolitical environment, significant volume
reductions from key contract customers, loss of key customers or
suppliers, financial stability of key customers and suppliers,
availability or cost of raw materials, impact related to tariffs
and other trade barriers, and increased competitive pricing
pressures reflecting excess industry capacities. Additional
cautionary statements regarding other risk factors that could have
an effect on the future performance of the Company are contained in
its Annual Report on Form 10-K for the year ended June 30,
2018.
Non-GAAP Financial MeasuresThis press release
contains non-GAAP financial measures. A non-GAAP financial
measure is a numerical measure of a company’s financial performance
that excludes or includes amounts so as to be different than the
most directly comparable measure calculated and presented in
accordance with Generally Accepted Accounting Principles (“GAAP”)
in the United States in the statement of income, statement of
comprehensive income, balance sheet, statement of cash flows, or
statement of equity of the Company. The non-GAAP financial
measures contained herein include adjusted operating income,
adjusted net income, adjusted diluted EPS, and ROIC. These
measures include adjustments in the three and six months ended
December 31, 2018 and December 31, 2017 related to
provisional tax adjustments resulting from Tax Reform, and for the
six months ended December 31, 2018, for proceeds from a
lawsuit settlement. Reconciliations of the reported GAAP
numbers to these non-GAAP financial measures are included in the
financial highlights table below. Management believes it is
useful for investors to understand how its core operations
performed without the effects of the provisional tax adjustments
resulting from Tax Reform and proceeds from the lawsuit
settlement. Excluding these amounts allows investors to
meaningfully trend, analyze, and benchmark the performance of the
Company’s core operations. Many of the Company’s internal
performance measures that management uses to make certain operating
decisions excludes these items to enable meaningful trending of
core operating metrics.
Conference Call / Webcast |
|
|
|
Date: |
|
February 7, 2019 |
Time: |
|
10:00 AM Eastern
Time |
Dial-In #: |
|
800-992-4934
(International Calls - 937-502-2251) |
Conference ID: |
|
1679486 |
The live webcast of the conference call can be accessed at
investors.kimballelectronics.com. For those unable to
participate in the live webcast, the call will be archived at
investors.kimballelectronics.com.
About Kimball Electronics, Inc.WHO WE
ARE Kimball Electronics is a leading contract manufacturer
of durable electronics serving a variety of industries on a global
scale. The customer is the focus of everything we do and our
touch is felt throughout daily life via the markets we serve:
Automotive, Industrial, Medical, and Public Safety.
Recognized for a reputation of excellence, we are committed to a
high-performance culture that values personal and organizational
commitment to quality, reliability, value, speed, and ethical
behavior. Our employees know they are part of a company
culture that is committed to doing the right thing. We build
lasting relationships and global success for customers while
enabling employees to share in the Company’s success through
personal, professional, and financial growth.
WHAT WE DO Kimball Electronics trades under the
symbol “KE” on The NASDAQ Stock Market. Kimball Electronics
is a preeminent Electronics Manufacturing Services (“EMS”) provider
serving customers around the world. Additionally, Kimball
Electronics offers diversified contract manufacturing services
(“DCMS”) for non-electronic components, medical disposables, and
plastics. GES, a Kimball Electronics Company, specializes in
design, production and servicing of automation, test, and
inspection equipment for the semiconductor, electronics, and life
sciences industries. From our operations in the United
States, China, India, Japan, Mexico, Poland, Romania, Thailand, and
Vietnam, our teams are proud to provide manufacturing services for
a variety of industries globally. Kimball Electronics is
headquartered in Jasper, Indiana.
To learn more about Kimball Electronics, visit:
www.kimballelectronics.com.
Lasting relationships. Global
success.
Financial highlights for the second quarter ended
December 31, 2018 are as follows:
Condensed Consolidated Statements of Income |
|
|
|
|
|
|
(Unaudited) |
Three Months Ended |
(Amounts in Thousands,
except Per Share Data) |
December 31, 2018 (1) |
|
December 31, 2017 |
Net Sales |
$ |
284,149 |
|
|
100.0 |
% |
|
$ |
258,151 |
|
|
100.0 |
% |
Cost of Sales (2) |
263,705 |
|
|
92.8 |
% |
|
237,230 |
|
|
91.9 |
% |
Gross Profit (2) |
20,444 |
|
|
7.2 |
% |
|
20,921 |
|
|
8.1 |
% |
Selling and
Administrative Expenses (2) |
10,232 |
|
|
3.6 |
% |
|
10,802 |
|
|
4.2 |
% |
Operating Income
(2) |
10,212 |
|
|
3.6 |
% |
|
10,119 |
|
|
3.9 |
% |
Other Income (Expense),
net (2) |
(1,593 |
) |
|
(0.6 |
)% |
|
467 |
|
|
0.2 |
% |
Income Before Taxes on
Income |
8,619 |
|
|
3.0 |
% |
|
10,586 |
|
|
4.1 |
% |
Provision for Income
Taxes |
1,504 |
|
|
0.5 |
% |
|
18,933 |
|
|
7.3 |
% |
Net Income (Loss) |
$ |
7,115 |
|
|
2.5 |
% |
|
$ |
(8,347 |
) |
|
(3.2 |
)% |
|
|
|
|
|
|
|
|
Earnings Per Share of
Common Stock: |
|
|
|
|
|
|
|
Basic |
$ |
0.27 |
|
|
|
|
$ |
(0.31 |
) |
|
|
Diluted |
$ |
0.27 |
|
|
|
|
$ |
(0.31 |
) |
|
|
|
|
|
|
|
|
|
|
Average Number of
Shares Outstanding: |
|
|
|
|
|
|
|
Basic |
25,993 |
|
|
|
|
26,765 |
|
|
|
Diluted |
26,036 |
|
|
|
|
26,765 |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
Six Months Ended |
(Amounts in Thousands,
except Per Share Data) |
December 31, 2018 (1) |
|
December 31, 2017 |
Net Sales |
$ |
549,769 |
|
|
100.0 |
% |
|
$ |
511,355 |
|
|
100.0 |
% |
Cost of Sales (2) |
511,139 |
|
|
93.0 |
% |
|
470,981 |
|
|
92.1 |
% |
Gross Profit (2) |
38,630 |
|
|
7.0 |
% |
|
40,374 |
|
|
7.9 |
% |
Selling and
Administrative Expenses (2) |
21,478 |
|
|
3.9 |
% |
|
20,732 |
|
|
4.1 |
% |
Other General
Income |
(92 |
) |
|
— |
% |
|
— |
|
|
— |
% |
Operating Income
(2) |
17,244 |
|
|
3.1 |
% |
|
19,642 |
|
|
3.8 |
% |
Other Income (Expense),
net (2) |
(2,147 |
) |
|
(0.4 |
)% |
|
1,779 |
|
|
0.4 |
% |
Income Before Taxes on
Income |
15,097 |
|
|
2.7 |
% |
|
21,421 |
|
|
4.2 |
% |
Provision for Income
Taxes |
2,913 |
|
|
0.5 |
% |
|
21,288 |
|
|
4.2 |
% |
Net Income |
$ |
12,184 |
|
|
2.2 |
% |
|
$ |
133 |
|
|
— |
% |
|
|
|
|
|
|
|
|
Earnings Per Share of
Common Stock: |
|
|
|
|
|
|
|
Basic |
$ |
0.46 |
|
|
|
|
$ |
— |
|
|
|
Diluted |
$ |
0.46 |
|
|
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
Average Number of
Shares Outstanding: |
|
|
|
|
|
|
|
Basic |
26,250 |
|
|
|
|
26,812 |
|
|
|
Diluted |
26,404 |
|
|
|
|
27,007 |
|
|
|
(1) As of July 1, 2018, the Company adopted the new accounting
standard on Revenue from Contracts with Customers on a modified
retrospective basis. For the three months ended December 31,
2018, the adoption increased Net Sales $6.0 million, Net Income
increased $0.2 million, and Diluted EPS was unchanged. For
the six months ended December 31, 2018, the adoption increased Net
Sales $6.4 million, Net Income increased $0.3 million, and Diluted
EPS increased $0.01. The prior periods were not restated.(2)
The Condensed Consolidated Statements of Income for the three and
six months ended December 31, 2017 have been retrospectively
restated for the adoption of new accounting guidance on improving
the presentation of net periodic pension cost and net periodic
postretirement benefit cost.
Condensed
Consolidated Statements of Cash Flows |
Six Months Ended |
(Unaudited) |
December 31, |
(Amounts in
Thousands) |
2018 |
|
2017 |
Net Cash Flow (used
for) provided by Operating Activities |
$ |
(4,394 |
) |
|
$ |
11,401 |
|
Net Cash Flow used for
Investing Activities |
(52,481 |
) |
|
(14,717 |
) |
Net Cash Flow provided
by (used for) Financing Activities |
47,264 |
|
|
(6,968 |
) |
Effect of Exchange Rate
Change on Cash and Cash Equivalents |
(954 |
) |
|
1,367 |
|
Net Decrease in Cash
and Cash Equivalents |
(10,565 |
) |
|
(8,917 |
) |
Cash and Cash
Equivalents at Beginning of Period |
46,428 |
|
|
44,555 |
|
Cash and Cash
Equivalents at End of Period |
$ |
35,863 |
|
|
$ |
35,638 |
|
|
(Unaudited) |
|
|
Condensed
Consolidated Balance Sheets |
December 31,
2018 |
|
June 30, 2018 |
(Amounts in
Thousands) |
ASSETS |
|
|
|
Cash and cash
equivalents |
$ |
35,863 |
|
|
$ |
46,428 |
|
Receivables,
net |
189,717 |
|
|
173,559 |
|
Contract assets
* |
49,629 |
|
|
— |
|
Inventories
* |
207,006 |
|
|
201,596 |
|
Prepaid expenses
and other current assets |
18,043 |
|
|
15,405 |
|
Property and
Equipment, net |
140,283 |
|
|
137,210 |
|
Goodwill |
10,841 |
|
|
6,191 |
|
Other Intangible
Assets, net |
23,727 |
|
|
4,375 |
|
Other Assets
* |
25,563 |
|
|
23,994 |
|
Total Assets |
$ |
700,672 |
|
|
$ |
608,758 |
|
|
|
|
|
LIABILITIES AND
SHARE OWNERS’ EQUITY |
|
|
|
Borrowings under credit facilities |
$ |
89,144 |
|
|
$ |
8,337 |
|
Accounts
payable |
197,999 |
|
|
187,788 |
|
Accrued
expenses * |
33,846 |
|
|
32,446 |
|
Long-term
income taxes payable |
11,084 |
|
|
12,361 |
|
Other |
16,022 |
|
|
12,299 |
|
Share
Owners’ Equity * |
352,577 |
|
|
355,527 |
|
Total
Liabilities and Share Owners’ Equity |
$ |
700,672 |
|
|
$ |
608,758 |
|
* The Company adopted new accounting guidance for the
recognition of revenue from contracts with customers on a modified
retrospective basis as of July 1, 2018. As a result of the
adoption of this new guidance, on July 1, 2018, the Company
recognized Contract assets of $43.2 million, reduced Inventories by
$39.2 million, reduced Other Assets by $0.9 million, increased
Accrued expenses by $0.2 million, and increased retained earnings
in Share Owners’ Equity by $3.1 million.
Reconciliation of Non-GAAP Financial Measures |
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
(Amounts in Thousands,
except Per Share Data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income excluding Lawsuit Proceeds |
|
Three Months Ended |
|
Six Months Ended |
|
December 31, |
|
December 31, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Operating Income, as
reported (1) |
$ |
10,212 |
|
|
$ |
10,119 |
|
|
$ |
17,244 |
|
|
$ |
19,642 |
|
Less: Pre-tax
Settlement Proceeds from Lawsuit |
— |
|
|
— |
|
|
92 |
|
|
— |
|
Adjusted Operating
Income (1) |
$ |
10,212 |
|
|
$ |
10,119 |
|
|
$ |
17,152 |
|
|
$ |
19,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income excluding Tax Reform and Lawsuit
Proceeds |
|
Three Months Ended |
|
Six Months Ended |
|
December 31, |
|
December 31, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Net Income (Loss), as
reported |
$ |
7,115 |
|
|
$ |
(8,347 |
) |
|
$ |
12,184 |
|
|
$ |
133 |
|
Add: Adjustments to
Provision for Income Taxes Resulting from Tax Reform |
(251 |
) |
|
16,580 |
|
|
(251 |
) |
|
16,580 |
|
Less: After-tax
Settlement Proceeds from Lawsuit |
— |
|
|
— |
|
|
70 |
|
|
— |
|
Adjusted Net
Income |
$ |
6,864 |
|
|
$ |
8,233 |
|
|
$ |
11,863 |
|
|
$ |
16,713 |
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share excluding Tax Reform and Lawsuit
Proceeds |
|
Three Months Ended |
|
Six Months Ended |
|
December 31, |
|
December 31, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Diluted Earnings (Loss)
per Share, as reported |
$ |
0.27 |
|
|
$ |
(0.31 |
) |
|
$ |
0.46 |
|
|
$ |
0.00 |
|
Add: Adjustments to
Provision for Income Taxes Resulting from Tax Reform |
(0.01 |
) |
|
0.62 |
|
|
(0.01 |
) |
|
0.62 |
|
Less: Impact of
Settlement Proceeds from Lawsuits |
— |
|
|
— |
|
|
0.00 |
|
|
— |
|
Adjusted Diluted
Earnings per Share |
$ |
0.26 |
|
|
$ |
0.31 |
|
|
$ |
0.45 |
|
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on
Invested Capital (ROIC) |
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
December 31, |
|
|
|
|
|
2018 |
|
2017 |
Operating Income (GAAP)
(1) |
|
|
|
|
$ |
39,640 |
|
|
$ |
37,515 |
|
Less: Pre-tax
Settlement Proceeds from Lawsuit |
|
|
|
|
$ |
92 |
|
|
$ |
— |
|
Adjusted Operating
Income (non-GAAP) (1) |
|
|
|
|
$ |
39,548 |
|
|
$ |
37,515 |
|
Tax Effect (2) |
|
|
|
|
$ |
8,982 |
|
|
$ |
7,269 |
|
After Tax Adjusted
Operating Income |
|
|
|
|
$ |
30,566 |
|
|
$ |
30,246 |
|
Average Invested
Capital (3) |
|
|
|
|
$ |
342,408 |
|
|
$ |
308,339 |
|
ROIC |
|
|
|
|
8.9 |
% |
|
9.8 |
% |
(1) Prior period Operating Income has been retrospectively
restated for the adoption of new accounting guidance on improving
the presentation of net periodic pension cost and net periodic
postretirement benefit cost.(2) Accumulated tax effect utilizing
the applicable quarterly effective tax rates, excludes adjustments
to provision for income taxes related to the U.S. Tax Cuts and Jobs
Act.(3) Average Invested Capital is computed using Share Owners’
equity plus current and non-current debt less cash and cash
equivalents averaged for the last five quarters.
CONTACT:Adam W. SmithTreasurerTelephone: 812.634.4000E-mail:
Investor.Relations@kimballelectronics.com
Kimball Electronics (NASDAQ:KE)
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