Knowles Corp Navigates Tariffs and Sees Strong Back-Half Growth in Q1 2025 Earnings Call

Knowles Corp (KN) delivered a cautiously optimistic Q1 2025 earnings report, with results at the high end of guidance and a clear path to margin recovery. Despite a modest year-over-year revenue dip, the company highlighted strategic progress in its medtech and defense segments, while positioning itself to capitalize on macroeconomic resilience in essential industries. Here’s what investors need to know.

Financial Results: Stability Amid Declines
Knowles reported Q1 revenue of $132 million, down 1% YoY but within the guided range. Non-GAAP EPS held steady at $0.18, reflecting cost discipline. Cash flow from operations surged to $1 million, driven by a $21 million prepayment on a future energy capacitor order—a $75 million+ deal that’s a highlight of the quarter.

The company’s Medtech and Specialty Audio segment grew slightly to $60 million, buoyed by metal can production for Syntient’s AI chips, while Precision Devices revenue dipped to $73 million due to production hiccups in its specialty film line. Notably, bookings (excluding the energy order) hit a book-to-bill ratio above 1.15, signaling strong demand across markets.

Operational Strengths: Tariff Resilience and Inventory Recovery
Knowles’ proximity manufacturing strategy—producing goods locally for regional markets—limited tariff exposure to less than 5% of revenue, with management confident they can pass cost increases to customers in critical sectors like medtech and defense.

In industrial markets, distributor inventory levels for Precision Devices have normalized to 3–3.5 months, up from earlier lows, driving renewed order activity. Meanwhile, the specialty film line, which lagged in Q1, is now showing sequential improvement after yield-enhancing upgrades. Management expects a larger ramp-up in the second half, aligning with its “stronger back half” revenue forecast.

Guidance & Outlook: Betting on Margin Expansion
For Q2, Knowles guided to $135–$145 million in revenue, a 2–9% sequential jump, with EPS projected to rise to $0.21–$0.25. Full-year growth is anticipated to resume in Q2, with gross margins improving as capacity utilization rises and customer mix shifts toward higher-margin products.

• Medtech margins: Expected to rebound to the low 50% range by year-end as Syntient metal can production scales.
• Precision Devices margins: Stabilized at 35.7% (flat YoY) but set to expand as film line capacity grows.

The company also highlighted its $350 million liquidity buffer—including $102 million in cash—for acquisitions, share buybacks, or debt reduction. A May 13 investor day will provide further clarity on its EV market expansion and long-term growth drivers.

Strategic Risks & Resilience
While Knowles appears well-positioned in medtech and defense, macroeconomic headwinds in industrial markets remain a risk. Management emphasized that its proximity manufacturing model could attract U.S. industrial customers seeking tariff-free alternatives, though this isn’t yet priced into guidance.

The company also faces production challenges in its film line, though these are being addressed. Meanwhile, the $75 million energy order—delivering $25 million annually starting in 2026—adds long-term visibility.

Conclusion: A Solid Foundation for Growth
Knowles’ Q1 results underscore its ability to navigate tariffs and macro uncertainty through strategic segmentation and operational focus. Key positives:
- Margin recovery: Sequential improvements are baked into guidance, with Medtech margins set to rebound.
- High-margin orders: The energy deal and strong bookings in Precision Devices position KN for a 20–25% EPS growth in H2 2025.
- Resilient end markets: Medtech and defense, which account for ~60% of revenue, are less cyclical and more insulated from economic downturns.

With a net leverage ratio of 0.7x and $350 million in liquidity, Knowles has the financial flexibility to execute on its growth plans. While the stock has underperformed the S&P 500 over the past year (down ~12% vs. the index’s ~8% rise), its Q1 results and upcoming investor day could catalyze a revaluation.

For investors, KN’s focus on medtech, proximity manufacturing, and margin expansion makes it a compelling play on sectors that thrive in both stable and uncertain environments. The path to recovery is clear—and the back half of 2025 could be the proving ground.