Kimball Electronics (KE)

Global electronics contract manufacturer Kimball Electronics (NYSE:KE) beat Wall Street’s revenue expectations in Q3 CY2025, but sales fell by 2.3% year on year to $365.6 million. The company expects the full year’s revenue to be around $1.4 billion, close to analysts’ estimates. Its non-GAAP profit of $0.49 per share was 81.5% above analysts’ consensus estimates.

Company Overview

Founded in 1961, Kimball Electronics (NYSE:KE) is a global contract manufacturer specializing in electronics and manufacturing solutions for automotive, medical, and industrial markets.

Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.

Competitors of Kimball Electronics include Plexus Corp. (NASDAQ:PLXS), Benchmark Electronics, Inc. (NYSE:BHE), and Celestica Inc. (NYSE:CLS).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Kimball Electronics’s sales grew at a sluggish 3.9% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Kimball Electronics’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 10.8% annually.

This quarter, Kimball Electronics’s revenue fell by 2.3% year on year to $365.6 million but beat Wall Street’s estimates by 8%.

Looking ahead, sell-side analysts expect revenue to decline by 3.9% over the next 12 months. Although this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.

Kimball Electronics has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 8.1% gross margin over the last five years. Said differently, Kimball Electronics had to pay a chunky $91.93 to its suppliers for every $100 in revenue.

In Q3, Kimball Electronics produced a 7.9% gross profit margin, up 1.6 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Kimball Electronics’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 4.4% over the last five years. This profitability was lousy for an industrials business and caused by its suboptimal cost structureand low gross margin.

Looking at the trend in its profitability, Kimball Electronics’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Kimball Electronics generated an operating margin profit margin of 4%, up 1.1 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Kimball Electronics, its EPS declined by 2.4% annually over the last five years while its revenue grew by 3.9%. However, its operating margin didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Kimball Electronics, its two-year annual EPS declines of 21.9% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Kimball Electronics reported adjusted EPS of $0.49, up from $0.22 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Kimball Electronics’s full-year EPS of $1.39 to shrink by 3.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Kimball Electronics broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, an encouraging sign is that Kimball Electronics’s margin expanded by 3.9 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

Kimball Electronics’s free cash flow clocked in at $8.07 million in Q3, equivalent to a 2.2% margin. The company’s cash profitability regressed as it was 6.4 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, leading to short-term swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Kimball Electronics historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.6%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Kimball Electronics’s ROIC averaged 1.8 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Kimball Electronics reported $75.7 million of cash and $137.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $67.46 million of EBITDA over the last 12 months, we view Kimball Electronics’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $7.19 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Kimball Electronics beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. The stock traded up 1.9% to $30.98 immediately after reporting.

Updated: December 3, 2025 at 10:11 PM EST

Are you wondering whether to buy Kimball Electronics or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Kimball Electronics doesn’t pass our quality test. For starters, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its projected EPS for the next year is lacking. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Kimball Electronics’s P/E ratio based on the next 12 months is 22.7x. This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $33 on the company (compared to the current share price of $29.18).