Methode Electronics’ Earnings Call: Mixed Signals

Methode Electronics ((MEI)) has held its Q3 earnings call. Read on for the main highlights of the call.

Methode Electronics’ recent earnings call painted a mixed picture, reflecting both significant achievements and ongoing challenges. The company highlighted operational improvements and successful program launches, alongside a revamped management team. However, these positives were tempered by a notable decline in sales, ongoing challenges with electric vehicle (EV) program rollouts, and broader market weaknesses, particularly in the automotive sector.

Successful Program Launches

Methode Electronics has been proactive in launching new programs, with 20 successful launches year-to-date. The company plans to launch an additional 33 programs over the next five quarters, demonstrating a strong commitment to innovation and growth.

Executive Management Overhaul

In a significant move, Methode Electronics has extensively rebuilt its executive management team, bringing in five new leaders from outside the organization within the last seven months. This overhaul aims to bring fresh perspectives and drive strategic initiatives.

Data Center Sales Growth

Sales in data center applications have been robust, contributing 7% to quarterly sales and expected to reach 9% for the fiscal year. This marks a significant increase from the historical range of 3-5%, highlighting the company’s successful expansion in this sector.

Operational Improvements

Despite lower sales, Methode Electronics achieved a $4 million increase in gross profit year-over-year. This improvement is attributed to lower scrap and freight costs, showcasing the company’s focus on operational efficiency.

Positive Free Cash Flow

The company reported a return to positive free cash flow, generating $20 million in the quarter. This financial health indicator underscores Methode Electronics’ ability to manage its resources effectively.

Sales Decline

Sales decreased by 8% year-over-year to $240 million, primarily due to the roll-off of two large auto programs and lower-than-expected EV demand. This decline poses a challenge for the company’s growth trajectory.

Adjusted Pretax Loss

Methode Electronics reported an adjusted pretax loss of $7 million, although this was an improvement from the previous year, indicating some progress in financial management.

Delayed EV Program Launches

The ramp-up of new EV programs, particularly for Stellantis, has been slower than expected, impacting the quarter and fiscal outlook. This delay highlights the challenges in the EV sector.

Weakness in Automotive Markets

The automotive markets, especially in North America and Europe, have shown weakness, posing a headwind for sales. This trend reflects broader market challenges impacting the industry.

Forward-Looking Guidance

Looking ahead, Methode Electronics provided guidance for a challenging fiscal 2025 third quarter, with sales expected at $240 million and an adjusted pretax loss of $7 million. Despite these challenges, the company achieved a $4 million higher gross profit due to improved operational execution. Methode Electronics is focused on launching new programs and anticipates profitable organic sales growth in fiscal 2026, despite current headwinds.

In summary, Methode Electronics’ earnings call reflected a balanced view of achievements and challenges. While the company has made significant strides in operational improvements and program launches, it faces ongoing challenges in sales decline and EV program rollouts. The forward-looking guidance suggests cautious optimism, with a focus on strategic growth and operational efficiency.