Key Tronic Corporation : KEY TRONIc announces second quarter results

KEY TRONIC CORPORATION ANNOUNCES RESULTS

FOR THE second QUARTER OF FISCAL YEAR 2014 

Continued New Customer Wins and Revenue Diversification

Spokane Valley, WA- January 28, 2014 - Key Tronic Corporation( Nasdaq: KTCC), a provider of electronic manufacturing services (EMS), today announced its results for the three months ended December 28, 2013.The Company's actual results were in line with its previous guidance.

For the second quarter of fiscal year 2014, Key Tronic reported total revenue of $78.3 million, compared to $94.6 million in the same period of fiscal year 2013. For the first six months of fiscal year 2014, total revenue was $156.2 million, compared to $192.1 million in the same period of fiscal year 2013.

Net income for the second quarter of fiscal year 2014 was $3.1 million or $0.28 per diluted share, compared to $3.6 million or $0.33 per diluted share for the same period of fiscal year 2013. Results for the second quarter of fiscal year 2014 include a one-time tax benefit of approximately $1.5 million or $0.13 per diluted share due to changes in Mexico's tax laws enacted in December of 2013. For the first six months of fiscal year 2014, net income was $4.8 million or $0.44 per diluted share, compared to $7.3 million or $0.67 per diluted share for the same period of fiscal year 2013.

For the second quarter of fiscal year 2014, gross margin was 9% and operating margin was 3%, compared to 10% and 6%, respectively, in the same period of fiscal year 2013.

"During the second quarter and moving into the third quarter of fiscal year 2014, many new programs continue to ramp up, despite greater than anticipated reductions in orders from some of our large, longstanding customers," said Craig Gates, President and Chief Executive Officer. "We currently expect to see sequential growth either during the fourth quarter of fiscal year 2014 or the first quarter of fiscal year 2015, as growing revenue from several new customers should offset and then exceed the revenue reductions in recent periods by certain large customers."

"At the end of the second quarter of fiscal year 2014, we were generating revenue from 190 separate programs and had 57 distinct customers, up from 169 programs and 52 customers a year ago. Furthermore, we continued to diversify our future revenue base during the second quarter by winning two new programs from new customers involving consumer dental hygiene products and consumer home products. The pipeline of potential new business remains very robust and we're investing in the expansion of our new sheet metal fabrication business to capitalize on a growing number of opportunities related to this capability."

Business Outlook

For the third quarter of fiscal year 2014, the Company expects to report revenue in the range of $73 million to $78 million, and earnings in the range of $0.13 to $0.18 per diluted share.  The expected earnings range assumes an effective tax rate of 32%.

Conference Call

Key Tronic will host a conference call today to discuss its financial results at 2:00 PM Pacific (5:00 PM Eastern). A broadcast of the conference call will be available at www.keytronic.com under "Investor Relations" or by calling 877-941-0844 or [phone]. A 48-hour replay will be available by calling 800-406-7325 or [phone] (Access Code: 4660975).  A replay will also be available on the Company's Web site.

For the first quarter of fiscal year 2014, Key Tronic reported total revenue of $78.0 million, compared to $97.5 million in the same period of fiscal year 2013. Net income for the first quarter of fiscal year 2014 was $1.7 million or $0.16 per diluted share, compared to $3.7 million or $0.35 per diluted share for the same period of fiscal year 2013. For the first quarter of fiscal year 2014, gross margin was 8.5% and operating margin was 3.2%, compared to 9.7% and 5.8%, respectively, in the same period of fiscal year 2013.

"As expected, our revenue and earnings were impacted by a significant reduction in orders from some of our large, longstanding customers in the first quarter of fiscal year 2014," said Craig Gates, President and Chief Executive Officer. "While our new programs typically take over 18 months to begin contributing revenue, we saw the continued ramp up of these new programs and increasing revenue diversification.  As a result, we expect to see strong sequential growth during the second half of fiscal year 2014, as growing revenue from several new customers should offset and then exceed the revenue reductions in recent periods by certain large customers.

"At the end of the first quarter of fiscal year 2014, we were generating revenue from 189 separate programs and had 57 distinct customers, up from 168 programs and 51 customers a year ago. We expect the increase in revenue generating programs and customers to reduce our revenue concentration. During the fourth quarter of the previous fiscal year, our largest customer contributed around 23% of our total revenue and our top three customers contributed around 61% of our total revenue. By the fourth quarter of fiscal year 2014, we expect our largest customer to be contributing around 15% of our total revenue and our top three customers to be contributing about 41% of total revenue.  

"We continue to see a robust pipeline of potential new business and have further diversified our future revenue base during the first quarter by winning new customer programs involving fitness equipment and HVAC controls.  Furthermore, our continued integration of Sabre Manufacturing into our operations is allowing us to begin rapidly expanding our sheet metal fabrication business across our customer base."

About Key Tronic

Key Tronic is a leading contract manufacturer offering value-added design and manufacturing services from its facilities in the United States, Mexico and China. The Company provides its customers 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.

Some of the statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all passages containing verbs such as 'aims, anticipates, believes, estimates, expects, hopes, intends, plans, predicts, projects or targets' or nouns corresponding to such verbs. Forward-looking statements also include other passages that are primarily relevant to expected future events or that can only be fully evaluated by events that will occur in the future. Forward-looking statements in this release include, without limitation, the Company's statements regarding its expectations with respect to quarterly revenue and earnings during fiscal 2014. There are many factors, risks and uncertainties that could cause actual results to differ materially from those predicted or projected in forward-looking statements, including but not limited to the future of the global economic environment and its impact on our customers and suppliers, the availability of parts from the supply chain, the accuracy of customers' forecasts; success of customers' programs; timing of new programs; success of new-product introductions; acquisitions or divestitures of operations or facilities; technology advances; changes in pricing policies by the Company, its competitors, customers or suppliers; and the other risks and uncertainties detailed from time to time in the Company's SEC filings.