Kimball Electronics (Nasdaq: KE) reported its second-quarter fiscal 2026 financial results, showcasing a strategic pivot towards higher-growth sectors and an increased outlook for the full fiscal year. While overall revenue saw a slight dip, the company’s medical vertical experienced robust expansion, signaling a successful execution of its diversification strategy.
**Q2 Fiscal 2026 Performance Highlights:**
For the quarter ending December 31, 2025, Kimball Electronics posted revenue of $341.3 million, a 5% decrease year-over-year. This decline was influenced by a strategic realignment of its business segments and a conscious effort to optimize its portfolio. However, the company’s medical segment emerged as a significant growth driver, with sales surging by an impressive 15% compared to the same period in the prior fiscal year.
Operating income stood at $10.8 million, representing 3.2% of net sales. More tellingly, adjusted operating income, which excludes certain one-time or non-recurring items, reached 4.5% of net sales, marking an 80 basis point improvement year-over-year. This demonstrates enhanced operational efficiency and profitability in its core business activities.
Cash flow from operations remained strong, generating $6.9 million. This marks the eighth consecutive quarter of positive operating cash generation, underscoring the company’s ability to convert its earnings into cash. Kimball Electronics maintained a healthy balance sheet with $154.2 million in debt and a substantial $285.1 million in available borrowing capacity, providing financial flexibility.
Furthermore, the company reported significant improvements in working capital management, with Cash Conversion Days (CCD) improving by 16 days year-over-year to 91 days. This efficiency gain reflects effective inventory, receivables, and payables management. The company also returned value to shareholders by investing $4.3 million to repurchase 149,000 shares of its common stock.
**Strategic Vision and Future Outlook:**
Richard D. Phillips, CEO of Kimball Electronics, expressed satisfaction with the quarterly results and the upward revision of fiscal year 2026 guidance. “Sales in Q2 were in line with expectations, highlighted by another quarter of strong double-digit year-over-year growth in the medical vertical, margins improved compared to the same period last year, and cash from operations was positive for the eighth consecutive quarter,” Phillips stated.
He further elaborated on the company’s strategic direction: “Our focus as a medical CMO continues to gain momentum as we leverage our unique capabilities in the industry. We expect top-line growth in medical to outpace our other two verticals as we balance our portfolio across the markets we serve. Our recent announcement to rebrand as Kimball Solutions, and the grand opening of the new medical manufacturing facility in Indianapolis, reflects this strategy and our expanded offering of capabilities and services.”
This rebranding to Kimball Solutions and the expansion of its medical manufacturing capacity signal a clear commitment to solidifying its position as a leading Contract Manufacturing Organization (CMO) in the healthcare sector. The company anticipates that its medical segment will lead its revenue growth, contributing to a more balanced and resilient business portfolio.
**Revised Fiscal Year 2026 Guidance:**
In light of its performance and strategic advancements, Kimball Electronics has raised its guidance for fiscal year 2026:
* **Net Sales:** Now projected to be between $1,400 million and $1,460 million, an increase from the previous range of $1,350 million to $1,450 million.
* **Adjusted Operating Income:** Estimated to be between 4.2% and 4.5% of net sales, up from the prior estimate of 4.0% to 4.25%.
* **Capital Expenditures:** Guidance remains unchanged, with a range of $50 million to $60 million.
The company’s increased guidance reflects confidence in its strategic initiatives, particularly the growth trajectory of its medical segment and the overall operational improvements.
**Financial Tables and Notes:**
The report includes detailed financial statements, including Condensed Consolidated Statements of Income, Cash Flows, and Balance Sheets, providing a comprehensive view of the company’s financial health. Notably, the divestiture of its Automation, Test, and Measurement (AT&M) business effective July 31, 2024, has been accounted for, with prior periods restated for comparative clarity. The company also provided segment-specific revenue breakdowns, emphasizing the strength of its medical vertical.
**Forward-Looking Statements and Non-GAAP Measures:**
The release contains forward-looking statements subject to various risks and uncertainties, including global economic conditions, geopolitical events, supply chain disruptions, and foreign exchange fluctuations. The company also utilizes non-GAAP financial measures, such as adjusted operating income and adjusted net income, which are reconciled to their GAAP counterparts, to provide a more meaningful understanding of its core operational performance.
**About Kimball Electronics, Inc.:**
Kimball Electronics is a global manufacturer specializing in Electronics Manufacturing Services (EMS) and Contract Manufacturing Organization (CMO) solutions. With operations across the United States, China, Mexico, Poland, Romania, and Thailand, the company serves diverse industries and is recognized for its commitment to quality, reliability, and ethical practices. Headquartered in Jasper, Indiana, Kimball Electronics aims to build lasting relationships and achieve global success.
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