Key Tronic's Q2 2025: Discrepancies in Aerospace Timelines, Inventory Management, and Component Shortages

These are the key contradictions discussed in Key Tronic Corporation's latest 2025 Q2 earnings call, specifically including: Aerospace and Energy Program Timelines, Customer Inventory Owned Off-Balance Sheet, Component Shortages Impact, and Inventory Trends and Management:



Revenue Decline and Component Shortages:
- Key Tronic Corporation reported total revenue of $113.9 million for Q2 2025, compared to $147.8 million in the same period of fiscal year 2024.
- The decline was primarily due to unexpected shortages from specific components managed by a large customer, lower-than-expected production during the holiday season, and reduced demand from certain customers, together lowering revenue by approximately $15 million for the quarter.

Margin Pressure and Revenue Impact:
- Gross margins were 6.8% and operating margins were negative 1% in the second quarter of fiscal 2025, compared to 8% and 2.7% respectively in the same period of fiscal 2024.
- The decline in margins primarily reflects the unexpected reduction of revenue, which has put pressure on profitability.

Inventory Reduction and Supply Chain Optimization:
- Key Tronic ended the second quarter of fiscal year 2025 by reducing inventory by approximately $23 million or 19% from the same time a year ago.
- This improvement reflects efforts to drive inventory reductions and increased industry-wide component availability, better aligning inventory levels with current revenue.

Tariffs and Strategic Expansions:
- The recently announced tariffs on China and potential tariffs on Mexico pose significant uncertainties about costs and margin performance in coming quarters.
- In response, Key Tronic is expanding its production capacity in Arkansas and Vietnam to mitigate the impact of these tariffs and capitalize on growing customer demand for onshoring contract manufacturing.