Outlook for Gross Margin and Operating Expenses – FY 2026
Kimball Electronics’ FY 2025 results show a clear trend of pressure on profitability: net sales fell 13% YoY (to $1.49 bn) while operating income slipped about 8% (to $45.5 m). The decline in operating income, despite a relatively modest drop in sales, signals that gross margins are tightening—likely due to higher component costs and pricing headwinds in the consumer‑electronics and automotive segments. Management’s FY 2026 guidance, while not providing explicit margin numbers, implies that the company anticipates continued cost inflation and modest pricing discipline, suggesting further compression of gross margin versus the prior year.
Operating expenses are projected to edge higher in FY 2026. The company’s historical cost structure shows a steady rise in SG&A and R&D spend, and the guidance indicates ongoing investments in manufacturing automation and product development to offset margin pressure. Consequently, operating expenses are expected to increase at a rate that outpaces revenue growth, which will keep operating income margin below FY 2025 levels unless the firm can achieve notable pricing improvements or cost efficiencies.
Trading Implications
From a technical standpoint, KE shares have been trading below their 50‑day moving average and have broken a descending trend line, reflecting market concern over margin erosion. If the company fails to stabilize gross margins or contain operating expense growth, the stock may face further downside pressure. Conversely, any forward‑looking commentary that highlights successful cost‑saving initiatives or higher‑margin product wins could trigger a bounce and present a short‑to‑medium‑term buying opportunity on pull‑backs. Traders should monitor upcoming earnings calls for explicit margin guidance and watch the next 10‑day EMA for a potential breakout signal.