Industrial components supplier NN (NASDAQ: NNBR) fell short of the market’s revenue expectations in Q2 CY2025, with sales falling 12.3% year on year to $107.9 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $445 million at the midpoint. Its non-GAAP profit of $0.02 per share was $0.02 above analysts’ consensus estimates.

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StockStory’s Take

NN’s second quarter results reflected a challenging market environment, particularly in the automotive segment, with sales declining year-over-year and missing Wall Street revenue expectations. Management attributed most of the sales shortfall to a major European automotive customer, while ongoing portfolio rationalization and cost initiatives helped maintain operating margins. CEO Harold Bevis highlighted the company’s ability to improve gross margins and win new business, stating, “We have launched over 70 new programs year-to-date and have more to go.”

Looking ahead, NN’s outlook is anchored by the continued ramp-up of new business launches and targeted investments in growth markets like medical and electrical components. Management expects these launches to support performance against a backdrop of industry uncertainty, particularly in automotive. CFO Chris Bohnert noted that guidance reflects “uncertainty from some of our top customers... as well as the unstable macroeconomic environment,” emphasizing the company’s reliance on new programs rather than a rebound in base markets.

Key Insights from Management’s Remarks

Management’s remarks emphasized transformation progress, new business wins, and targeted investments as key to both recent performance and guidance.

• Automotive Customer Impact: The majority of the revenue decline was attributed to reduced orders from a single large Tier 1 automotive customer in Europe, underscoring the segment’s volatility.
• Portfolio Rebalancing: NN continued to shift its business mix, achieving 61% of sales from non-automotive sources, a strategic goal to reduce reliance on cyclical auto demand.
• Operational Streamlining: The closure of underperforming facilities and a 20% reduction in staffing since mid-2023 improved the cost structure and contributed to margin expansion, according to COO Tim French.
• New Business Momentum: The company secured $32.7 million in new business year-to-date, with over 70 new programs launched and a pipeline of $750 million, supporting future revenue streams.
• Growth Investments: Management increased capital expenditures and added specialized talent—particularly in medical and electrical markets—to drive diversification and support future launches.

Drivers of Future Performance

NN’s near-term outlook is shaped by new program launches, cost control, and ongoing uncertainty in core end markets.

• New Program Launches: Management is counting on the progressive launch of new business programs, expected to provide incremental revenue as base market conditions remain flat. Any delay in customer launch dates could impact guidance attainment.
• Cost Control and Margin Focus: Continued focus on operational efficiency, facility optimization, and staff redeployment is expected to drive further adjusted EBITDA margin expansion, even as revenue growth remains pressured by external factors.
• End-Market Uncertainty: Volatility in global automotive production, shifting tariff policies, and questions around demand in electrical and industrial markets present ongoing risks, with management highlighting that no material rebound is assumed in their guidance.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will be monitoring (1) the pace and successful execution of new business program launches, (2) further progress in margin expansion from cost reduction efforts, and (3) the impact of targeted investments in medical and electrical market growth. Additional attention will be paid to M&A developments and NN’s ability to offset market volatility through portfolio diversification.

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