Electronic components manufacturer Knowles (NYSE: KN) beat Wall Street’s revenue expectations in Q2 CY2026, with sales up 14.3% year on year to $166.8 million. On top of that, next quarter’s revenue guidance ($172 million at the midpoint) was surprisingly good and 5.2% above what analysts were expecting. Its non-GAAP profit of $0.33 per share was 8.2% above analysts’ consensus estimates.

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StockStory’s Take

Knowles delivered a strong Q2, with revenue growth driven by broad-based demand across its Precision Devices and Medtech & Specialty Audio segments. Management highlighted that all core end markets—medtech, defense, industrial, and electrification—posted gains, citing robust design wins and a healthy backlog. CEO Jeffrey Niew called out the company’s ability to secure multiyear defense orders and ramp up production for industrial and energy applications. The continued outperformance in Precision Devices was supported by both original equipment manufacturer (OEM) and distribution channel partners, while Medtech saw steady growth despite some inventory-related headwinds. Factory productivity gains and improved product mix contributed to margin expansion, and management emphasized that bookings were particularly strong, setting the stage for continued momentum.

Looking ahead, Knowles’ guidance for the next quarter is underpinned by ongoing strength in its Precision Devices segment and expectations for steady demand in medtech and defense markets. Management sees opportunities for additional growth from new product introductions and a favorable pricing environment, especially in defense and industrial applications. CFO John Anderson noted that increased factory capacity utilization and annual price adjustments are expected to further support margin expansion. CEO Jeffrey Niew added that the company’s backlog and accelerating book-to-bill ratios provide confidence in double-digit revenue growth for the rest of the year, supported by secular trends in healthcare and defense as well as design wins in next-generation products.

Key Insights from Management’s Remarks

Management attributed Q2 performance to robust order activity, higher factory utilization, and broad-based customer demand, especially in Precision Devices and defense applications.

• Robust Precision Devices demand: Sales growth in the Precision Devices segment was driven by strong demand across medtech, defense, industrial, and electrification markets. Management emphasized that design wins were widespread, with both OEMs and distribution partners contributing to momentum. Broad-based bookings and a book-to-bill ratio above 1.4 for the seventh consecutive quarter signaled durable demand.
• Defense segment acceleration: Management cited increased spending on electronic warfare and radar applications as primary contributors to the defense segment’s outperformance. CEO Jeffrey Niew highlighted a $15 million multiyear radar order, noting growing customer requests for capacity commitments and long-term supply agreements tied to replenishment needs and rising global defense budgets.
• Medtech & Specialty Audio stability: The Medtech & Specialty Audio segment posted modest year-over-year growth, with management attributing stability to consistent demand in hearing health and diagnostic imaging. Niew pointed out that Knowles continues to win next-generation MEMS microphone and balanced armature speaker designs, enhancing its value proposition in hearing health.
• Product mix and pricing power: CFO John Anderson reported that gross margin improvement was fueled by higher pricing, favorable product mix, and increased capacity utilization. Management described its pricing as less commodity-driven, with annual increases possible due to Knowles’ specialized offerings and sole-source supplier status in many applications.
• Supply chain and capacity investments: Management disclosed ongoing investments in factory capacity and R&D to support demand, particularly in Precision Devices. Capital spending is expected to remain at about 5% of revenue, with selective increases to enable new product introductions and respond to strong backlog growth.

Drivers of Future Performance

Knowles expects continued growth from secular demand in defense and medtech, ongoing product innovation, and favorable industrial trends to shape revenue and margin expansion.

• Defense and industrial growth: Management expects sustained demand in defense, supported by ongoing geopolitical tensions and government spending on electronic warfare. Industrial end markets are also expected to benefit from automation trends and robust design wins, with management noting that order strength remains broad-based across applications.
• Margin expansion strategies: The company is targeting further gross margin improvements through higher pricing, favorable product mix, and increased factory utilization. Management also cited a path to higher EBITDA margins over the next two to three years, driven by both cost discipline and operating leverage from higher production volumes.
• Selective M&A and capacity investments: While organic growth remains the primary focus, management is actively evaluating acquisition opportunities that complement Knowles’ core platforms. Capital allocation will also support incremental capacity expansion to address strong backlog and anticipated growth areas such as energy and specialty industrials.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will watch (1) the pace of large defense-related order intake and how quickly those translate into shipments; (2) evidence of sustained margin gains from improved pricing and product mix, particularly in Precision Devices; and (3) progress on capacity expansion and design wins in new industrial and energy applications. Continued execution on capital allocation and updates on potential acquisitions will also be key areas of focus.

Knowles currently trades at $38.53, down from $39 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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