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METHODE ELECTRONICS INC (MEI)·Q1 2025 Earnings Summary

Executive Summary

  • Net sales were $258.5M, down 10.8% YoY; GAAP diluted EPS was $(0.52) and adjusted diluted EPS was $(0.31), with adjusted pre-tax loss better than internal expectations .
  • Cash generation improved: operating cash flow was $10.9M vs $(5.6)M YoY; free cash flow was $(2.7)M vs $(19.4)M YoY; debt fell to $296.0M and net debt rose to $184.7M on lower cash .
  • Guidance affirmed: FY25 net sales ~flat YoY and adjusted pre-tax income approaching breakeven; FY26 net sales greater than FY25 with positive and notably higher pre-tax income .
  • EV mix rebounded to 18% of sales; bookings solid at >$80M annual program awards; CFO transition announced to strengthen execution and cost focus .
  • Key catalyst: management’s credible tone, sequential improvement in gross profit, and affirmed outlook despite auto/commercial vehicle headwinds and an EV lighting program roll-off .

What Went Well and What Went Wrong

What Went Well

  • Adjusted pre-tax loss and cash flow were better than management’s expectations; “acute focus on balance sheet and cash generation” delivering >$16M improvement in net cash from ops .
  • EV activity rebounded to 18% of sales; bookings remained solid, including >$80M annual program awards; data center orders showing a rebound .
  • Sequential gross profit improvement driven by price increases and lower warranty costs; operating improvement momentum cited across regions .

What Went Wrong

  • Asia weakness from a previously disclosed EV lighting program roll-off; commercial vehicle lighting headwinds; lower volume drove year-over-year declines .
  • Elevated launch costs and absorption challenges from numerous new programs; discrete legal fees tied to Hetronic litigation pressured results .
  • Higher interest expense and tax (valuation allowance and GILTI) weighed on EPS; net loss widened to $(18.3)M vs $0.9M YoY .

Financial Results

MetricQ3 FY2024Q4 FY2024Q1 FY2025
Revenue ($USD Millions)$259.5 $277.3 $258.5
GAAP Diluted EPS ($USD)$(0.33) $(1.63) $(0.52)
Adjusted Diluted EPS ($USD)$(0.33) $(0.23) $(0.31)
Gross Profit ($USD Millions)$37.0 $35.5 $44.6
Gross Margin (%)14.2% (37.0/259.5) 12.8% (35.5/277.3) 17.3% (44.6/258.5)
Operating Income (Loss) ($USD Millions)$(3.0) $(61.5) $(7.5)
Operating Margin (%)(1.2%) (−3.0/259.5) (22.2%) (−61.5/277.3) (2.9%) (−7.5/258.5)
EBITDA ($USD Millions)$9.4 $(44.0) $5.8
Adjusted EBITDA ($USD Millions)$9.5 $5.3 $9.8

Segment breakdown (Q1 FY2025 vs Q1 FY2024):

SegmentQ1 FY2024 Net Sales ($MM)Q1 FY2025 Net Sales ($MM)Q1 FY2024 Op Inc (Loss) ($MM)Q1 FY2025 Op Inc (Loss) ($MM)
Automotive$158.3 $134.8 $(2.8) $(5.7)
Industrial$115.4 $111.5 $24.2 $16.9
Interface$15.2 $12.2 $2.9 $1.9

KPIs and balance sheet:

KPIQ3 FY2024Q4 FY2024Q1 FY2025
EV share of sales (%)19% 14% 18%
Operating Cash Flow ($MM)$28.8 $24.9 $10.9
Free Cash Flow ($MM)$12.2 $15.8 $(2.7)
Total Debt ($MM)$331.3 $330.9 $296.0
Cash & Equivalents ($MM)$122.9 $161.5 $111.3
Net Debt ($MM)$208.4 $169.4 $184.7

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY2025Similar to FY2024 Similar to FY2024 Maintained
Adjusted Pre-Tax IncomeFY2025Approaching breakeven Approaching breakeven Maintained
H2 vs H1 cadenceFY2025H2 significantly stronger than H1 Second half significantly stronger than first half Maintained
Depreciation & AmortizationFY2025n/a$60–$65M Added
Capital ExpendituresFY2025n/a$50–$60M Added
Tax expense (GAAP)FY2025n/a$9–$11M (incl. $4.3M valuation allowance and expected GILTI) Added
Net SalesFY2026> FY2025 > FY2025 Maintained
Pre-Tax IncomeFY2026Positive and notably > FY2025 Positive and notably > FY2025 Maintained
DividendQ1 FY2025$0.14/share $0.14/share declared; payable Nov 1, 2024; record Oct 18, 2024 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY2024 and Q4 FY2024)Current Period (Q1 FY2025)Trend
EV program roll-offs and launchesQ3: EV demand weakness; program roll-offs hit auto volumes . Q4: EV program roll-off in Asia; e-bike overstock in Europe .EV lighting program ended in FY24; launching multiple EV programs for Stellantis; EV share rebounded to 18% and expected >20% for FY25 .Transition underway; EV mix improving despite near-term market softness.
Supply chain and operational efficiencyQ3: operational inefficiencies (scrap, premium freight) in NA impacted margins . Q4: operational inefficiencies and higher costs continued .Focus on lowering total supply chain cost; Mexico plants improved; procurement optimization under new CPO .Sequential improvement; targeted cost actions continuing.
Data center power productsQ3: lower demand for power distribution into data centers .Bookings rebound; awards include data center applications .Improving demand; supportive for Industrial segment mix.
Pricing actionsn/a in prior releasesPrice increases contributed to higher gross profit sequentially .Positive margin lever; ongoing customer discussions.
Regional trendsAsia weakness (EV roll-off), Europe strength; NA launch costs .Asia down (EV lighting roll-off); Europe up on ramps; NA pressured by launches and legacy roll-offs .Mixed by region; Europe offsetting some Asia/NA headwinds.
Legal/regulatoryn/aDiscrete legal fee for Hetronic litigation in quarter .One-off cost; monitoring.
Tax/GILTIQ3 tax expense modest .Higher tax expense from valuation allowance and expected GILTI; FY25 tax $9–$11M .Elevated tax burden in FY25.

Management Commentary

  • “We are beginning a journey to transform the business to position it for long-term value creation… our first priority must be to successfully execute on a large pipeline of new programs… over 30 program launches in fiscal 2025 and another 20 in fiscal 2026.”
  • “Our sales in the quarter were on track with our expectations, while our adjusted pre-tax loss was better than our expectations… we continue to have an acute focus on our balance sheet and cash generation.”
  • “Sequential improvement [in adjusted EBITDA] despite lower sales as a result of higher gross profit. The higher gross profit was driven in part by price increases and lower warranty costs.”
  • FY25 outlook specifics: “Depreciation and amortization of $60–$65 million; CapEx of $50–$60 million, and a tax expense of $9–$11 million… adjusted pretax income… approaching breakeven.”

Q&A Highlights

  • Guidance discipline and tone: Management affirmed FY25 revenue and adjusted pre-tax outlook, emphasizing credibility and prudence amid market headwinds and launch challenges .
  • Margin drivers: Gross margin improvement tied to operations, passed-through price increases, supply base price reductions; expected to gain momentum QoQ .
  • Pricing runway: Ongoing, program-by-program customer discussions to share responsibility for delays and capital/inventory costs; no quarter-specific quantification .
  • Inventory/launch dynamics: Inventory elevated due to ramp delays on long lead items; pursuing customer holding-cost discussions and optimization .
  • EV launches: Multiple Stellantis EV program launches in FY25/FY26; EV mix expected to exceed 20% in FY25; contribution margins seen “on par, if not accretive” vs recent auto average .
  • Tax: FY25 GAAP tax expense estimated $9–$11M; Q1 recorded ~$5M .

Estimates Context

  • We attempted to retrieve Wall Street consensus (S&P Global) for Q1 FY2025 EPS/revenue to quantify beats/misses, but the data was unavailable due to SPGI access limits at this time; therefore, numeric consensus comparisons are not provided. Values from S&P Global were unavailable.
  • Management indicated adjusted pre-tax loss was better than internal expectations and sales were “on track,” but these are not Wall Street consensus comparisons .

Key Takeaways for Investors

  • Solid cash discipline: sequential gross profit improvement and positive operating cash flow signal early execution on cost actions despite volume headwinds .
  • EV transition: near-term roll-off in EV lighting offset by new EV power programs (Stellantis) and rising EV mix; watch bookings and launch execution vs customer take rates .
  • Industrial resilience: data center power product demand rebounding; Industrial margins remain strong (Q1 op margin 15.2%) and support portfolio balance .
  • Margin recovery levers: pricing actions, warranty cost reductions, procurement and supply chain optimization under new CPO are tangible margin catalysts .
  • Tax/interest drag: expect elevated FY25 tax ($9–$11M) and higher net interest expense to weigh on EPS; breakeven adjusted pre-tax targeted in FY25 H2 .
  • Balance sheet: total debt reduced QoQ; covenant compliance maintained; net debt increased on lower cash—monitor free cash flow cadence as launches ramp .
  • Guidance credibility: affirmed FY25/FY26 trajectory under new leadership and CFO; near-term stock moves likely tied to evidence of launch execution, margin progression, and data center strength .