Kimball Electronics Q3 2025: Navigating Contradictions in Inventory, Automotive Growth, and Tariff Impacts

Inventory management and cash conversion, automotive sales and customer laps, automotive vertical growth in China, impact of tariffs and production relocation, and auto orders and customer communications are the key contradictions discussed in Kimball Electronics' latest 2025Q3 earnings call.



Sales Performance and Market Trends:
- Kimball Electronics reported net sales of $375 million in Q3, a 10% decline year-over-year when excluding the AT&M business.
- Sales in the Medical vertical increased by 2% compared to the previous year, driven by non-recurring consignment inventory sales.
- The decline in Automotive and Industrial sectors was due to reduced demand in North America and decline in smart meters and climate control products.

Financial and Operational Results:
- Gross margin rate was 7.2%, down by 70 basis points compared to the previous year, with the decline attributed to lower absorption and consigned inventory sales with modest markup.
- Operating income was $15.7 million, representing a 4.2% of net sales, compared to 4.4% of the previous year.
- Cash flow from operating activities was $30.9 million, marking the fifth consecutive quarter of positive cash flow.

Strategic Investments and Growth Plans:
- Kimball Electronics announced a new manufacturing facility in Indianapolis focused on the Medical CMO, with a 300,000 square feet footprint.
- The new facility is part of a strategy to reposition the company for growth, aiming to expand its presence in medical manufacturing and enhance profitability through drug-device combinations.

Inventory and Debt Management:
- Inventory levels decreased by $100 million year-over-year, with a balance of $296.6 million at the end of Q3.
- Debt borrowings were reduced by 45% from their peak levels, with $178.8 million in borrowings at the end of the quarter.