Key Tronic Earnings Will Fall Short Company Warns Current Quarter Won’t Meet Expectations

An industrywide slowdown in computer sales will have an impact on Key Tronic Corp.’s earnings during the current quarter, company officials warned Friday.

The company says both sales and profits for the quarter ending June 30 will be below analysts’ expectations.

The shortfall in sales is due to lower shipment volumes of the company’s computer keyboards, according to a news release issued Friday.

Several of Key Tronic’s distributors have delayed keyboard orders in anticipation of major price reductions in computer processors. And those delays are complicated by the decision of one of Key Tronic’s major customers to discontinue a specific keyboard program earlier than had been expected. The company would not identify that customer.

“Originally, one analyst following us had sales for the quarter figured at $52 million,” said Michael Newman, a Key Tronic spokesman. “And he had us down for earnings at 5 cents per share. We think we’ll be below that.”

Based on preliminary unaudited results, Key Tronic now expects sales of about $45 million for the final quarter of fiscal 1997.

“We don’t know yet if the company is going to be profitable for the quarter,” Newman said. He added that the lower sales are “certainly going to have an impact on the bottom line.”

The news prompted one of the highest volume performances for Key Tronic stock during the past 12 months. In trading of 273,400 shares on the Nasdaq exchange, the stock closed Friday at $5.56-1/4 per share, down from Thursday’s close of $5.87-1/2.

The problems that have stalled Key Tronic’s earnings once again are similar to those that set the company back a year ago.

Fiscal 1995 was a strong year for the Spokane-based manufacturer of computer keyboards and other input devices. Key Tronic enjoyed steadily increasing profits over that year which peaked at $1.85 million during the fourth quarter.

Six months later, though, the company was laying off employees to cope with slower customer orders.

During the first quarter of fiscal 1996, worldwide personal computer demand slowed at rates greater than the industry anticipated, and several large customers asked that shipments of keyboards for the second and third quarters be slowed.

In addition, two major customers prematurely ended production of computer models that relied on custom Key Tronic keyboards.

As a result, profits fell to $1.6 million in the first quarter of fiscal 1996, and $696,000 in the second quarter. The company took big hits with losses of $966,000 in the third quarter and $3.2 million in the fourth quarter.

Much of those losses was associated with problems at the company’s Irish manufacturing operation, which has since been shut down.

The company returned to profitability in the first quarter of the current fiscal year with $200,000 in earnings. Second quarter earnings were $56,000, and third quarter earnings sank to $19,000 on sales of $49 million.

The repeated pattern of slowing shipments and cancellations of programs by major customers points up the need to broaden Key Tronic’s product base, according to Fred Wenninger, president and chief executive officer.

“Both the recent slowdown in shipments and sustained pricing pressures in the keyboard business underscore the need for us to move forward with our two-part growth strategy,” Wenninger said in Friday’s news release.

The first part of the strategy is a commitment to improving the profitability of the keyboard business by continuing to reduce production costs and expand customer base.

Wenninger has great hopes for new technologies such as fingerprint recognition devices and smart-card readers.

Second is a plan to produce non-keyboard products “which are complementary to our core strengths.”

That will allow Key Tronic to “tap into large, growing and diversified markets that can significantly improve our sales volumes while better utilizing our existing assets,” Wenninger said.

, DataTimes