KN Q1 Earnings Call: Tariff Resilience and Improving Bookings Underpin Upbeat Outlook

Electronic components manufacturer Knowles (NYSE: KN) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 32.7% year on year to $132.2 million. On top of that, next quarter’s revenue guidance ($140 million at the midpoint) was surprisingly good and 3.4% above what analysts were expecting. Its non-GAAP profit of $0.18 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Knowles' first quarter was shaped by steady performance in its medtech and defense-oriented businesses, with CEO Jeffrey Niew emphasizing minimal direct tariff exposure and a supply chain strategy built around proximity manufacturing. Management highlighted that less than 5% of revenue is subject to current tariffs, and the company expects to recover nearly all tariff-related costs through price increases or surcharges. Niew explained that most Knowles products, particularly those in medtech, are considered essential and tend to be more insulated from economic shocks than other sectors.

Looking ahead, management pointed to strong backlog and order activity, especially in medtech and specialty audio, as key drivers for the coming quarters. Executives cited normalizing distributor inventory levels in industrial markets and ramping production in the specialty film line as factors expected to boost sequential growth. CFO John Anderson noted, “We expect sequential improvement in gross margins throughout 2025, driven by higher capacity utilization and a favorable customer mix.”

Key Insights from Management’s Remarks

Management focused on operational resilience and end-market stability, providing clarity on why the company has weathered recent macroeconomic and tariff headwinds. The following points summarize the key business drivers discussed:

• Tariff Exposure Limited: Knowles estimates less than 5% of its revenue is directly subject to new tariffs, and under 3% of cost of goods sold is affected due to its proximity manufacturing strategy and localized supply chain.
• Medtech and Defense Demand: Products supporting essential functions like implantable medical devices and defense programs have shown little sensitivity to recent economic uncertainty, benefiting from continued customer demand regardless of broader market conditions.
• Industrial Segment Normalizing: Inventory levels at industrial distributors are returning to normal, leading to increased order activity and expectations for improved shipments in the second half of the year.
• Specialty Film Line Progress: The Precision Device segment’s new prototype line is operational, with improving yields and plans for incremental shipment increases as the year progresses. Management expects a larger ramp-up in the second half.
• Distributor Bookings Strength: Bookings for capacitor products and filters were strong, with a book-to-bill ratio above 1.15 in Precision Devices, indicating broad-based demand recovery across end markets apart from previously announced large energy orders.

Drivers of Future Performance

Management’s outlook for the remainder of the year centers on continued demand in essential end-markets, operational improvements, and the ability to adapt to external pressures such as tariffs and supply chain shifts.

• Capacity Utilization Gains: Increasing demand is expected to drive higher capacity utilization, particularly in the Precision Devices segment, supporting sequential gross margin improvement.
• Order Backlog and Normalizing Inventories: Growing backlog in medtech and specialty audio, along with normalized distributor inventories in industrial markets, positions the company for year-over-year growth in the upcoming quarters.
• Tariff and Supply Chain Management: Minimal direct tariff exposure and the ability to pass on most additional costs to customers provide some insulation from macroeconomic uncertainties, though management remains watchful for shifts in end-market demand.

Top Analyst Questions

• Bob Labick (CJS Securities): Asked about customer outlooks amid tariff uncertainty; management stated there has been no significant demand change and emphasized end-market resilience in medtech and defense.
• Bob Labick (CJS Securities): Inquired about the large $75 million capacitor order in energy; executives confirmed the order remains on track with substantial prepayment received, supporting future delivery confidence.
• Anthony Stoss (Craig Hallum Capital Group): Sought details on gross margin trends; CFO John Anderson projected sequential improvement through 2025, driven by better capacity utilization and product mix.
• Anthony Stoss (Craig Hallum Capital Group): Questioned whether U.S. production could lead to market share gains; CEO Jeffrey Niew acknowledged increased customer interest in U.S.-based supply and potential upside, particularly in industrial.
• Christopher Rolland (Susquehanna): Asked about booking trends and future growth sources; management highlighted broad-based booking strength and indicated both organic and inorganic growth opportunities would be further discussed at Investor Day.

Catalysts in Upcoming Quarters

Over the coming quarters, the StockStory team will track (1) the pace of shipment ramp-up in the specialty film line and whether it achieves targeted production gains, (2) continued normalization of distributor inventory levels in industrial markets and its impact on order activity, and (3) the ability to maintain or improve gross margins as capacity utilization increases. Additionally, any updates on large energy sector orders and potential M&A activity could signal shifts in growth strategy.

Knowles currently trades at a forward P/E ratio of 14.8×. Should you double down or take your chips? See for yourself in our free research report.

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