Key Tronic Profit Drops As Pricing Pressure Builds

A trend of declining profits continued for the third consecutive quarter for Key Tronic Corp., which Tuesday reported thin third-quarter earnings of $19,000 on sales of $49 million.

That compares with a net loss of $966,000, or 11 cents per share, on sales of $41 million during the third quarter of fiscal 1996.

That third quarter one year ago set the stage for a trying year for investors in the Spokane-based computer keyboard manufacturer. It was followed by a fourth-quarter loss of $3.2 million as the company took a big hit in shutting down its manufacturing operation in Ireland.

It returned to profitability with $200,000 in earnings during the first quarter of the current fiscal year, but second-quarter earnings dropped to $56,000.

Third-quarter results, though, include a one-time expense of $247,000 for refinancing debt and establishing a new line of credit at more attractive interest rates.

“While we are not satisfied with our recent financial performance, we believe the company is heading in the right direction,” Fred Wenninger, Key Tronic’s president and chief executive officer, said in a news release Tuesday.

“We have been aggressively responding to dramatic pricing pressures on our keyboard business by continuing to reduce production costs, expand our worldwide customer support, and develop new high value-added keyboards and advanced input devices, such as fingerprint recognition and smart-card readers,” he added.

The pricing pressures Wenninger mentioned are evident in the sales and income figures in Tuesday’s earnings report.

For the first nine months of fiscal 1997, Key Tronic reported a 9 percent increase in the total unit shipments of computer keyboards compared with the same period a year ago.

But year-to-date sales were $141.6 million, down from $158.4 million from the first three months of fiscal 1996.

The decline in year-to-date sales, Wenninger said, is primarily the result of a 20 percent reduction in the average selling price of the company’s keyboards.

Net income for the first nine months of fiscal 1997 was $282,000, or 3 cents per share, compared with $1.3 million, or 13 cents per share, for the same period in fiscal 1996.

Wenninger has outlined a plan to expand Key Tronic’s product offerings to areas that will leverage off the company’s “core competencies.” Wenninger lists those strengths as rapid interactive design capability, precision plastic molding capability, and low-cost assembly capability.

At a special meeting Tuesday, shareholders approved a company plan to restructure a set of stock options held by Stanley Hiller, former chief executive officer and current board chairman. But because only 67 percent of the shares were represented at the meeting, the board has scheduled another meeting for May 28 to re-vote the issue.

Hiller, who led the successful effort to rescue Key Tronic from collapse over the past five years, was compensated for attempting the corporate turnaround with stock options. One of those options was for 2.4 million shares at $6 per share. That option was to be exercised by March 1 this year, but the Key Tronic board negotiated an extension to present the alternative plan to shareholders.

That plan called for Hiller to give up those options in exchange for 1 million shares of restricted stock. Hiller will earn those shares at the rate of 333,333 per year over three years provided he maintains his active involvement as chairman of Key Tronic’s board.

Of the shares voted Tuesday, company officials said 90 percent favored the proposal.

, DataTimes