Kimball Electronics Q2 2025: Unpacking Contradictions in Inventory, Capacity, and Tariff Strategies

These are the key contradictions discussed in Kimball Electronics' latest 2025Q2 earnings call, specifically including: Inventory Management and Sales Forecast, Capacity Utilization and Tariff Strategy, and Tariffs and Production Strategy:



Revenue Decline and Market Conditions:
- Kimball Electronics reported net sales of $357 million for Q2 fiscal 2025, representing a 13% decline year-over-year excluding AT&T, with declines in North America and Europe.
- The decline was driven by a sustained period of declining customer demand, particularly in the automotive and medical verticals.

Automotive Segment Performance:
- Automotive sales were $193 million, a 4% decrease compared to Q2 last year, representing 54% of total company sales.
- Results in China were strong, but offset by softness in North America due to overstocking and lower demand.

Medical Segment Challenges:
- Medical sales were $84 million, a 22% decrease compared to the same period last year, accounting for 23% of total company sales.
- The decline was attributed to a program going end-of-life in Thailand and delays due to FDA recalls impacting a major medical customer.

Inventory Management and Cash Flow:
- Inventory ended the quarter at $306.2 million, a $149 million reduction compared to a year ago, with cash conversion days improving to 107 days.
- The company generated $29.5 million from operating activities in Q2, marking the fourth consecutive quarter of positive cash flow, driven by efforts to align discretionary spending with current demand.

Financial Guidance Adjustment:
- For fiscal year 2025, net sales guidance was revised to $1.4 billion to $1.44 billion, and adjusted operating income is estimated at 3.4% to 3.6% of net sales.
- The revision reflects more time needed for the company to stabilize its business and return to historical growth patterns following a longer-than-expected customer demand weakness.