Knowles (KN) Q1 2026: Precision Devices Up 17% as Defense and Industrial Orders Drive Backlog

April 23, 2026 | By EarningsIQ Research

Knowles posted robust Q1 results, with precision devices leading organic growth and momentum sustained by strong defense and industrial demand. Management’s focus on custom engineered solutions and capacity expansion underpins margin expansion, while a surging backlog signals above-target growth for the year. Investors should watch for continued margin leverage in the second half as specialty film ramps and defense orders extend visibility into 2027.

Summary

• Backlog-Driven Growth: Precision devices segment outpaced expectations, fueled by broad-based demand and a 1.19 book-to-bill.
• Margin Expansion Catalyst: Specialty film ramp and pricing discipline set the stage for further gross margin gains in the second half.
• Defense Pipeline Visibility: Multi-year order discussions and replenishment tied to global conflict expand revenue visibility into 2027.

Performance Analysis

Knowles delivered a strong start to 2026, with revenue growth and earnings per share exceeding guidance highs, driven by broad-based strength in both MedTech and precision devices. The precision devices segment, accounting for the majority of company revenue, posted 17% year-over-year growth, powered by defense, industrial, and medtech demand. A 1.19 book-to-bill ratio highlights accelerating order momentum and backlog health, with management emphasizing that nearly all orders are expected to ship within 12 months, underscoring near-term revenue visibility.

Gross margin expansion was a key theme, supported by higher factory utilization and favorable product mix, especially in the MedTech and specialty audio segment, which also benefited from new product introductions. Precision devices margins improved 350 basis points, and management signaled further upside as the specialty film line supporting a large energy order ramps in the back half of the year. Operating expenses rose due to increased R&D and SG&A investments, particularly to support growth initiatives in precision devices, but were offset by higher earnings leverage and lower interest expense from reduced debt levels.

• Precision Devices Outperformance: Segment growth outpaced both company and guidance targets, with defense and industrial markets as primary engines.
• Specialty Film Ramp: Capacity investments for a $75 million energy order are on track, expected to drive margin expansion in the second half.
• Order Momentum: Strong backlog and continued high order rates in April reinforce management’s raised growth outlook for 2026.

Cash utilization was modest and share repurchases continued, reflecting confidence in ongoing free cash flow generation and balance sheet strength.

Executive Commentary

Strategic Positioning

1. Custom Engineering and Blue Chip Focus

Knowles’ business model centers on designing and scaling custom solutions for demanding applications, particularly in defense, medtech, and industrial markets. This approach enables premium pricing and high-margin profiles, differentiating Knowles from commodity component suppliers.

2. Capacity Expansion as Growth Lever

Investments in specialty film and capacitor production are central to unlocking further revenue and margin growth, especially as the company ramps a $75 million energy order. Management emphasizes that these investments are largely in place, with only incremental direct labor needed to support increased volume, ensuring operating leverage as demand grows.

3. Defense and Industrial Tailwinds

Secular growth in defense and industrial markets provides a durable demand backdrop. Defense in particular is seeing rising order sizes and multi-year commitments, with management highlighting expected replenishment cycles tied to global conflicts as a source of visibility into 2027.

4. Margin Discipline and Pricing Power

Pricing power remains a lever, particularly in precision devices, where management targets 2% to 4% annual price increases depending on customer and application. The company’s willingness to avoid commoditized segments, especially in RF and satellite, preserves gross margin integrity.

5. R&D and SG&A Investments for Future Growth

R&D and SG&A are rising in tandem with growth initiatives, supporting new product introductions, expanded engineering teams, and the scaling of production lines. These investments are tied to clear revenue and margin expansion opportunities, rather than speculative bets.

Key Considerations

This quarter marked a step-function improvement in order visibility and operational execution, with management signaling confidence in both top-line growth and further margin expansion. Investors should note:

Key Considerations:

• Backlog Health: The 1.19 book-to-bill ratio, with nearly all orders shipping within 12 months, provides rare near-term visibility for a component supplier.
• Specialty Film Ramp Timing: Successful execution on the energy order ramp is critical for both revenue and gross margin expansion in the second half.
• Defense Order Duration: Ongoing negotiations for multi-year defense orders could lock in elevated demand through 2027, reducing cyclicality risk.
• Pricing Power Discipline: Management’s focus on value-added, non-commoditized segments supports margin durability even as input costs fluctuate.

Risks

Execution risk remains around the specialty film ramp and large energy order, as any delays or yield issues could impact margin expansion in the second half. Defense demand visibility is positive, but any abrupt changes to geopolitical priorities or procurement cycles could temper growth. Input cost inflation appears manageable, but resin and transportation costs warrant monitoring. Management’s ability to maintain pricing discipline and avoid commoditized markets is a key margin safeguard, but competitive dynamics could shift if demand softens.

Forward Outlook

For Q2 2026, Knowles guided to:

• Revenue between $152 and $162 million, up 8% year-over-year at midpoint
• Adjusted EBIT margin of 20% to 22%
• EPS of $0.28 to $0.32 per share
• Operating cash flow of $20 to $30 million

For full-year 2026, management raised expectations:

• Revenue growth above the prior 4% to 6% organic target
• Precision devices expected to exceed the 6% to 8% organic growth target
• Gross margin expansion, especially in the second half as specialty film ramps

Management highlighted:

• Backlog and order rates remain strong, with April bookings tracking above trend
• Capital spending will remain focused on capacity expansion for high-value orders

Takeaways

Knowles is executing on a high-visibility growth plan, with precision devices and defense orders driving revenue and margin upside.

• Order Visibility: The current backlog and book-to-bill ratio provide rare clarity for the next 12 months, supporting management’s above-target growth outlook.
• Margin Leverage: Specialty film and pricing discipline are set to deliver further gross margin expansion, particularly in the second half of 2026.
• Long-Term Growth Anchors: Defense and industrial secular tailwinds, combined with multi-year order discussions, underpin durable revenue streams into 2027.

Conclusion

Knowles is positioned for sustained above-target growth, with strong order momentum, disciplined pricing, and operational leverage from capacity expansion. Investors should track the specialty film ramp and defense order duration as key drivers of margin and revenue visibility through 2027.

Industry Read-Through

Knowles’ results signal robust demand for custom, high-reliability components in defense, industrial, and medtech markets, with secular tailwinds and multi-year order patterns extending visibility for peers. Suppliers with differentiated engineering and capacity flexibility are best positioned to capture pricing power and margin expansion, while those exposed to commoditized segments may face headwinds. Defense and electrification capex cycles remain resilient, and component makers with backlog visibility and operational discipline are set to outperform in a supply-constrained environment.

KN Technology Electronic Components Industrial Defense MedTech Backlog Margin Expansion