Kimball Electronics' (NASDAQ:KE) Soft Earnings Are Actually Better Than They Appear

Kimball Electronics, Inc. (NASDAQ:KE) recently reported its fourth-quarter and fiscal year 2024 earnings, which may seem soft at first glance. However, a deeper dive into the numbers reveals a more positive picture, particularly when considering adjusted operating income (AOI) and adjusted net income (ANI) metrics. These non-GAAP measures exclude one-time impairment charges related to the divestiture of the Automation, Test, and Measurement business, providing a clearer view of the company's operational and financial health.

In Q4 2024, Kimball Electronics' AOI was $20.9 million, or 4.9% of net sales, while ANI was $8.361 million. Although these figures are lower than the previous year, they indicate a stable operating margin and positive earnings, driven by inventory reductions. The company's focus on cost controls and strategic divestments, combined with recent new program wins, suggests a path towards improved performance in the coming quarters.

A closer look at the adjusted metrics shows that Kimball Electronics' core operations are performing better than the headline GAAP numbers indicate. Adjusted operating income was $74.3 million, or 4.3% of net sales, while adjusted net income was $35.8 million. This suggests that the company's earnings are more resilient than initially thought.



The difference between GAAP and non-GAAP metrics can be attributed to one-time charges related to the divestiture of the Automation, Test and Measurement business, which impacted the company's earnings. Additionally, the company's focus on cost controls and inventory management has improved its working capital and cash flow, further enhancing its financial performance.

In conclusion, Kimball Electronics' recent earnings report may appear soft, but a deeper analysis reveals a more positive picture when considering adjusted operating income and adjusted net income metrics. These non-GAAP measures provide a clearer view of the company's operational and financial health, excluding one-time and non-recurring items. The company's focus on cost controls, strategic divestments, and inventory management has helped it maintain a stable operating margin and positive earnings, setting the stage for improved performance in the coming quarters.