Key Tronic sales fell 17.4% to $386.7M in FY2026. The net loss widened to $47.8M ($4.41/share), mostly from a $28.4M non-cash tax write-down plus restructuring and bad-debt charges. The adjusted loss narrowed to $3.7M, backlog rose 28% to $204.1M, and the balance sheet tightened.
Revenue
$387M
-17.4% YoY
Net income
-$48M
Diluted EPS
$-4.41
Operating margin
-3.8%
Overview
Key Tronic is a contract manufacturer: other companies (the "OEMs", original equipment manufacturers) design products and pay Key Tronic to build them in its plants in the US, Juarez (Mexico) and Da Nang (Vietnam). In fiscal 2026 (the year ended June 27, 2026) sales fell 17.4% to $386.7 million and the net loss widened to $47.8 million, or $4.41 per share, from $8.3 million ($0.77) a year earlier.
Most of that loss is accounting rather than cash. About $28.4 million came from a tax charge, and another $23.5 million from restructuring and bad-debt charges. Stripping out the company's listed one-off items, management's adjusted net loss was $3.7 million ($0.34 per share), a smaller loss than the $5.0 million ($0.47) adjusted loss of fiscal 2025. The underlying business is roughly break-even at a much smaller size. The balance sheet, though, got visibly weaker over the year.
Key metrics
Metric
FY2026
FY2025
YoY Change
Net sales
$386.7M
$467.9M
-17.4%
Gross margin
6.2%
7.8%
-1.6 pts
Operating margin
-3.8%
0.1%
-3.9 pts
Net income (loss)
-$47.8M
-$8.3M
Loss widened by $39.5M
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Diluted EPS
-$4.41
-$0.77
Loss widened by $3.64
Adjusted net loss (non-GAAP)
-$3.7M
-$5.0M
Loss narrowed by $1.3M
Order backlog (year-end)
$204.1M
$159.1M
+28.3%
Top 5 customers, share of sales
39%
48%
-9 pts
Largest customer ("Customer A"), share of sales
14%
25%
-11 pts
Inventories (year-end)
$95.8M
$97.3M
-1.5%
Total debt (year-end)
$108.3M
$107.6M
+0.6%
Gross margin is what's left of sales after the direct cost of building the products (materials, factory labor and overhead). Operating margin also subtracts overhead such as sales, admin and engineering, before interest and tax.
Why sales fell
The 10-K breaks the $81.2 million decline into three parts:
about $80 million from lower demand from existing, ongoing customers;
about $48 million from "end-of-life" programs (products the customer stopped making) that had their final shipments during the year;
partly offset by about $38 million from new programs or programs that ramped up significantly.
The mix of what Key Tronic builds changed a lot. Consumer products fell from 38% of sales to 24%. Industrial rose from 52% to 58% and communication from 6% to 11%. The company also became much less dependent on its biggest customer: "Customer A" was 14% of sales, down from 25%, and the top five customers were 39%, down from 48%. That is less concentration risk, but most of the improvement came from the big customers buying less, not from new customers adding volume. Sales to customers located in China fell from 20% to 12% of the total.
Margins: restructuring on a smaller base
Gross margin fell 1.6 points to 6.2%. Management attributes this to the lower revenue, meaning fixed factory costs were spread over fewer sales, plus restructuring charges for winding down manufacturing in China and further workforce cuts in Mexico. Earlier headcount reductions partly offset it. Full-time headcount fell from 3,539 to 3,298. Inventory write-downs charged to expense rose to $3.3 million from $0.1 million.
The operating line was hit harder than gross profit by three unusual items:
Bad debts (SG&A). Selling, general and administrative expense (SG&A) rose to $36.5 million from $26.7 million, or 9.5% of sales versus 5.7%. The filing says this was "largely attributable to an approximately $10.4 million increase in charges for estimated collections from customers". In its non-GAAP reconciliation the company lists $10.3 million of "receivables allowance for distressed customers" and describes long-term receivables it wrote off. The total allowance for credit losses (money set aside for bills it may never collect) went from $5.4 million to $14.0 million.
Insurance gain. A $5.9 million net insurance gain related to storm damage at the Corinth, Mississippi plant reduced operating expenses.
Restructuring. The company lists $13.2 million of restructuring charges for the year, versus $2.9 million in fiscal 2025.
By our arithmetic, adding back the restructuring and distressed-receivable charges and removing the insurance gain would move the $14.7 million operating loss to a small operating profit of roughly $3 million. That assumes all of those charges sit above the operating line, which the filing doesn't state line by line. On that basis the operating business is only just profitable, at under 1% of sales.
The tax charge: why net loss is so much bigger than pre-tax loss
The pre-tax loss was $24.8 million, but the company still booked $23.0 million of income tax expense, giving an effective tax rate of -92.8%. The cause is a $28.4 million valuation allowance against US deferred tax assets.
Deferred tax assets are future tax savings, such as R&D credits and past losses, that a company records on its balance sheet on the expectation it will earn enough taxable profit to use them. Accounting rules require a write-down once that is no longer "more likely than not." Management says it had counted on returning to operating profitability in the fourth quarter. That didn't happen "due to supply chain constraints". With a US pre-tax loss of about $26.5 million for the year and a three-year cumulative US loss, it could no longer support the asset.
The charge is non-cash, and the company says it has no effect on debt covenant compliance. The deferred tax asset on the balance sheet fell from $23.4 million to $1.5 million. If the US business returns to sustained profit, the allowance can be reversed later, but the filing says explicitly that no reversal should be read as expected.
Balance sheet, debt and covenants
This is the part of the filing most worth watching.
Equity fell sharply. Shareholders' equity (the book value left for shareholders after all debts) dropped from $117.1 million to $69.2 million because of the loss. The company reports a debt-to-equity ratio of 1.54, meaning it owes about $1.54 of debt for every $1 of equity. The current ratio is 2.1: short-term assets cover short-term liabilities about twice over.
Cash is minimal and the business runs on its credit line. Cash was $0.6 million at year-end. Total debt was $108.3 million, most of it a $74.7 million drawing on a $115 million asset-based revolving credit facility with BMO. "Asset-based" means the amount it can borrow is tied to its receivables, inventory and equipment. There is also a $23.5 million term loan from Callodine at 10.8% interest. Both mature on December 3, 2029.
Less room to borrow. Available borrowing capacity was $16.5 million at June 27, 2026 and $16.9 million at September 12, 2026, down from $25.0 million a year earlier. The loan agreement's $13 million "availability block" limits it further. The company says that if it misses its projections it may have to delay raw-material purchases, ask customers to pay for materials up front, factor (sell) receivables, or borrow against its foreign assets.
Covenants. The company says it was in compliance with the covenants under the main US credit agreement at year-end. It is not in compliance with the debt-coverage and leverage covenants on its Mexican loans with Banorte, which it attributes to a change in how Mexican income tax is calculated and paid. Banorte has said it won't exercise its right to demand early repayment, and those loans are small at about $3.0 million combined. The company has breached covenants before: in May 2025 its lenders waived a default on a minimum-earnings test.
No going-concern warning. The filing doesn't raise doubt about the company continuing in business. Management states that cash from operations, the revolver and other financing options will be enough for at least the next 12 months, and it expects operations to generate cash "as revenue increases in the first half of fiscal year 2027."
Operating cash flow was $4.4 million, down from $18.9 million. It came from working capital, not profit: accounts payable (bills owed to suppliers) rose $12.2 million and accounts receivable fell $11.5 million. Inventory barely moved, at $95.8 million versus $97.3 million, while sales fell 17%, so inventory now turns into sales more slowly. Management says it expects inventory to be used up as it fills the backlog once supply-chain availability improves.
Footprint: out of China, into Vietnam and Arkansas
The year's strategic change was geographic. Key Tronic exited manufacturing in China and kept only a procurement office in Shanghai. It right-sized Juarez, doubled its manufacturing footprint in Vietnam, and opened a new technology and R&D center in Springdale, Arkansas. Management frames this as a response to tariffs on goods made in China and Mexico and to customers moving production back toward North America. Long-lived assets in the US rose to $38.3 million from $20.5 million, while Mexico ($12.6 million) and Vietnam ($4.4 million) were roughly flat. Management expects Arkansas to deliver double-digit revenue growth in fiscal 2027. The company also continued ramping a large contract with a data-processing OEM in Corinth, Mississippi. That customer supplies ("consigns") its own components, so Key Tronic is paid for assembly work only and the contract adds less to reported revenue than its volume suggests.
Takeaway: The headline $47.8 million loss is mostly a non-cash tax write-down and one-off charges. The adjusted loss actually narrowed to $3.7 million. The real risk is the balance sheet: equity has shrunk to $69 million against $108 million of debt, cash is under $1 million, and borrowing room is down to about $16–17 million. Fiscal 2027 depends on turning the 28% larger backlog into sales before that cushion runs out.
Outlook
Management gives no numeric revenue or earnings guidance. Its positives are concrete:
more than $60 million of new program awards in the fourth quarter alone;
backlog up 28% to $204.1 million, though the company notes that orders can be cancelled or rescheduled, so backlog is not a reliable predictor;
a leaner cost base after the China exit and the Mexico cuts.
It expects revenue to rise and operations to generate cash in the first half of fiscal 2027.
Our view: fiscal 2026 was supposed to end with a return to operating profit in the fourth quarter, and it didn't. That miss is why the tax asset was written down, so the "improvement later in the year" forecast has already failed once. The fiscal 2027 quarterly reports should show sales rising toward the backlog, gross margin climbing back toward fiscal 2025's 7.8%, if the restructuring charges really are behind it, and no more large bad-debt charges. Also watch borrowing availability on the revolver. If revenue recovers, the leaner footprint should convert more of it into profit. If it doesn't, the company has limited financial room and could face tighter lender terms or dilutive financing.
Source: Key Tronic Form 10-K for the fiscal year ended June 27, 2026, filed September 24, 2026. Adjusted net loss is the company's own non-GAAP measure. The ~$3 million operating figure excluding one-offs is our calculation from the items the company itself lists.