KE Q2 Deep Dive: Medical Segment Momentum and Strategic Facility Investment Shape Outlook

August 14, 2025 at 14:10 PM EDT

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Global electronics contract manufacturer Kimball Electronics (NYSE: KE) beat Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 11.6% year on year to $380.5 million. The company expects the full year’s revenue to be around $1.4 billion, close to analysts’ estimates. Its non-GAAP profit of $0.34 per share was 83.8% above analysts’ consensus estimates.

Is now the time to buy KE? Find out in our full research report (it’s free).

Kimball Electronics (KE) Q2 CY2025 Highlights:

Revenue: $380.5 million vs analyst estimates of $333.2 million (11.6% year-on-year decline, 14.2% beat)
Adjusted EPS: $0.34 vs analyst estimates of $0.19 (83.8% beat)
Adjusted EBITDA: $26.17 million vs analyst estimates of $18.21 million (6.9% margin, 43.7% beat)
Operating Margin: 4.6%, in line with the same quarter last year
Market Capitalization: $511.3 million

StockStory’s Take

Kimball Electronics posted second-quarter results that surpassed Wall Street’s revenue and profit expectations, with the market responding positively. Management credited this outcome to sequential sales growth, disciplined cost control, and strong cash flow generation, which enabled further debt reduction. CEO Richard Phillips highlighted the company’s progress in repositioning for profitable growth, citing a notable increase in customer wins and high-quality ratings. Phillips emphasized, “We made significant progress positioning the company for a return to profitable growth with noteworthy accomplishments, including a record number of wins for future business.”

Looking ahead, Kimball Electronics’ guidance is shaped by ongoing investments in its medical contract manufacturing operations and a strategic focus on expanding capabilities in this segment. Management expects modest growth in medical and industrial verticals, partially offset by continued weakness in automotive, and is prioritizing the launch of a new Indianapolis medical facility. CFO Jana Croom noted the company will keep investing in automation and business development, saying, “We’re making big investments, as you can imagine, with that new facility on the sales side to put effort around that to drive that business over time.”

Key Insights from Management’s Remarks

Management attributed the quarter’s results to operational discipline, a renewed focus on medical contract manufacturing, and cost containment efforts supporting margin stability despite sales declines.

Medical segment rebound: The medical vertical grew year-over-year for the second consecutive quarter, driven by renewed business with a major respiratory care customer and the company’s role as sole supplier for final assembly.
Automotive headwinds: Automotive revenue declined due to the loss of a major electronic braking program in Reynosa, only partially offset by a ramp-up of a similar program in Romania and continued softness in electronic steering systems for electric vehicles.
Cost structure adjustments: Management implemented broad cost reductions, including lower selling and administrative expenses and inventory optimization, which improved cash flow and reduced debt.
Working capital discipline: Improved cash conversion days and inventory management were highlighted, with Croom noting, “We see additional opportunity to drive higher levels of cash from our EMS operations while continuing to reduce CCD with new working capital initiatives.”
Strategic facility investment: The company is investing in a new 300,000 square foot Indianapolis facility focused on medical manufacturing, aimed at expanding production capabilities for high-complexity devices and supporting long-term growth.

Drivers of Future Performance

Kimball Electronics’ outlook is underpinned by investments in its medical manufacturing platform and cost discipline, but faces mixed demand across end markets.

Medical facility expansion: The Indianapolis facility, expected to open in November, will significantly expand capacity for medical device production and is designed for further scalability. Management believes this investment will position the company to secure long-term contracts and higher-margin business.
Automotive and industrial trends: Management expects continued softness in automotive due to lost programs and weak electric vehicle demand, while industrial markets show early stability but limited near-term upside. Modest growth in medical and industrial is anticipated to balance automotive declines.
Margin and cash flow focus: Cost structure improvements are expected to sustain operating margins, with management reiterating discipline in working capital and further automation investments. The company sees margin uplift potential as capacity utilization improves with future revenue growth.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the ramp-up and customer onboarding at the Indianapolis medical facility, (2) progress in offsetting automotive program losses with new medical and industrial contracts, and (3) further reductions in cash conversion days and improvements in margin from automation and cost controls. Expansion of the medical customer base and execution on new product introductions will also be important signposts for future growth.

Kimball Electronics currently trades at $23.26, up from $21 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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