Sign in
ME

METHODE ELECTRONICS INC (MEI)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY2025 delivered net sales of $292.6M, a return to positive GAAP pre-tax income of $1.6M and adjusted pre-tax income of $6.2M; adjusted EPS was $0.14 while GAAP diluted EPS was a loss of $0.05 .
  • Mix shift toward power products for data centers supported year-over-year sales growth; EV-related sales were 20% of total and program awards exceeded $50M, signaling pipeline health .
  • Guidance raised: FY2025 adjusted pre-tax income moved from “approaching breakeven” to “approximately breakeven”; FY2025 sales reaffirmed “similar to FY2024,” with Q3 expected to be soft and Q4 significantly stronger; FY2026 reaffirmed for higher sales and positive pre-tax income .
  • Cash flow was weak in Q2 due to accounts payable timing and a 14-week quarter, with free cash flow at -$58.4M; management reiterated covenant compliance and emphasized continued cost actions (premium freight, scrap) and launch execution as near-term catalysts .

What Went Well and What Went Wrong

  • What Went Well

    • “Our sales in the quarter were the highest that we have reported since fiscal 2023, and our pre-tax income returned to positive territory.” — CEO Jon DeGaynor .
    • Data center demand for power distribution products rose and was a tailwind; management cited ~50% YoY growth and above-average margins in the category .
    • Operational improvements drove lower premium freight and better fixed overhead absorption; adjusted operating income and adjusted EBITDA improved YoY to $14.3M and $26.7M, respectively .

  • What Went Wrong

    • EV program roll-offs and auto market weakness in Asia pressured Automotive segment sales (-5.7% YoY) and contributed to consolidated margin compression .
    • Operating cash flow and free cash flow were negative due to accounts payable timing and the 14-week quarter, with CFO noting Q2 adjusted pretax slightly ahead but cash timing unfavorable .
    • Interest expense climbed and remains a run-rate headwind at ~$6.2M per quarter, per CFO commentary .

Financial Results

MetricQ2 2024Q2 2025Q3 2025
Revenue ($USD Millions)$288.0 $292.6 $239.9
GAAP Diluted EPS ($)($1.55) ($0.05) ($0.41)
Adjusted EPS ($)$0.06 $0.14 ($0.21)
Income from Operations ($MM)($51.3) $9.4 ($2.2)
Adjusted Income from Operations ($MM)$6.0 $14.3 ($1.3)
Pre-tax Income ($MM)($55.5) $1.6 ($8.2)
Adjusted Pre-tax Income ($MM)$2.4 $6.2 ($7.3)
EBITDA ($MM)($36.7) $22.1 $11.4
Adjusted EBITDA ($MM)$21.2 $26.7 $12.3
Net Cash from Operating Activities ($MM)($0.6) ($48.0) $28.1
Free Cash Flow ($MM)($11.3) ($58.4) $19.6

Segment performance (Quarterly)

SegmentMetricQ2 2024Q2 2025
AutomotiveNet Sales ($MM)$154.3 $145.5
AutomotiveIncome from Operations ($MM)($61.5) $0.7
IndustrialNet Sales ($MM)$120.4 $131.4
IndustrialIncome from Operations ($MM)$25.7 $24.3
InterfaceNet Sales ($MM)$11.7 $15.7
InterfaceIncome from Operations ($MM)$1.0 $4.7

KPIs

KPIQ2 2024Q2 2025Q3 2025
EV Sales as % of RevenueN/A20% 24%
Data Center Power Products Share of Sales~3–5% of total; ~50% YoY growth commentary “Higher demand” qualitative tailwind 7% of Q3; FY on track ~9%
Program Awards (Annualized)N/A>$50M $20M in Q3; YTD $130M
Total Debt ($MM)$330.9 (FY24-end) $340.6 $327.9
Net Debt ($MM)$169.4 (FY24-end) $243.6 $224.1
Premium Freight Reduction (QoQ)N/AN/A$7.0M reduction QoQ
Interface Inventory Reserve ReductionN/AN/A~$0.5M
Covenant ComplianceN/AIn full compliance In full compliance

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY2025Similar to FY2024 Similar to FY2024 Maintained
Adjusted Pre-tax IncomeFY2025Approaching breakeven Approximately breakeven Raised
Net SalesQ3 FY2025N/ASimilar to prior-year Q3 New Q3 view
Adjusted Pre-tax IncomeQ3/FY2025N/AQ3 potentially pre-tax loss; Q4 significantly stronger than Q3 New intra-year cadence
Net SalesFY2026Greater than FY2025 Greater than FY2025 Reaffirmed
Pre-tax IncomeFY2026Positive and notably greater than FY2025 Positive and notably greater than FY2025 Reaffirmed
DividendQ2 FY2025N/A$0.14 per share (paid Jan 31, 2025) Announced
Net SalesQ4 FY2025N/A$240–$255M Updated in Q3 release
Pre-tax IncomeQ4 FY2025N/A($1)–$3M Updated in Q3 release

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY2025)Current Period (Q2 FY2025)Trend
EV Program Launches and Take Rates20 programs launched YTD; slower-than-expected ramp, Stellantis volumes lowered; GM busbar takeover in FY26 Over 30 launches in FY25 and 20+ in FY26; EV 20% of sales; majority of awards in EV/power Launch cadence intact; EV market volatile; diversified OEM exposure
Data Center Power Demand / AI TailwindsStrong quarter, 7% of Q3; FY ~9%; tech disruption driving opportunity Higher demand drove YoY growth; category ~3–5% of total and ~50% YoY growth; above-average margins Strength building; strategic focus area via CSO
Cost Actions (Scrap, Premium Freight)Lower scrap/premium freight; lowered breakeven; positive FCF Premium freight notably reduced; better overhead absorption; sequential $7M premium freight reduction in Q3 following Q2 ops improvements Execution improving; further reductions targeted
Tariffs/MacroQ4 guidance excludes new U.S. tariffs; ~1/3 of sales potentially impacted; war-room approach; cost recovery stance Not explicitly quantified in Q2; standard risk language and mitigation focus Heightened attention post-Q2; proactive customer negotiations
Compliance / SEC SubpoenaNoted cooperation and transparency; building compliance resources Not addressed in Q2 press; standard risk disclosure Ongoing; limited detail due to inquiry
Leadership / OrganizationFive seasoned leaders added; CSO appointed (Mar 10, 2025) SVP Global Automotive (Lars Ullrich) appointed effective Dec 2, 2024 Management bench strengthened

Management Commentary

  • “The team is energized, and these results demonstrate that we are heading in the right direction. Our sales in the quarter were the highest that we have reported since fiscal 2023, and our pre-tax income returned to positive territory.” — CEO Jon DeGaynor .
  • “Sales in the quarter were 20% of our consolidated total [EV], a sequential increase from 18% in the first quarter… we continue to expect the EV percentage to grow further.” — CEO Jon DeGaynor .
  • “Second quarter adjusted pretax income was $6.2 million… slightly ahead of our full year expectations.” — CFO Laura Kowalchik .
  • “Data centers are roughly 3% to 5% of our total sales… about 50% year-over-year improvement… above-average margin.” — CEO Jon DeGaynor .

Q&A Highlights

  • Cost controls beyond freight: management cited thinning overheads and scrap reduction as execution-driven contributors to operating income .
  • EV/power program awards: majority of new awards tied to EV and power programs; Stellantis is a key customer but exposure is balanced across OEMs and regions .
  • Data center quantification: ~3–5% of sales in Q2 with ~50% YoY growth; Q3 mixed increased to ~7% with FY ~9% expected .
  • Premium freight: $7M quarter-over-quarter reduction, with further improvement targeted in EMEA and North America (Mexico, Egypt focus) .
  • Interface segment: ~$0.5M inventory reserve reduction supported margins .
  • Tariffs: ~1/3 of sales potentially affected; proactive stance not to absorb extra cost; war-room coordination underway .

Estimates Context

  • Wall Street consensus estimates for Q2 FY2025 (EPS and revenue) via S&P Global were unavailable due to request limits. As a result, comparisons to consensus cannot be provided; management indicated adjusted pretax income was slightly ahead of full-year internal expectations .
  • Expect estimate revisions to reflect: increased mix contribution from data centers, continued EV program ramp volatility (Stellantis delays), and FY2025 adjusted pre-tax guidance raised to approximately breakeven .

Key Takeaways for Investors

  • Execution improvement is tangible: adjusted operating income +$8.3M YoY and adjusted EBITDA +$5.5M YoY; freight and scrap reductions have lowered the breakeven and should leverage margins on future growth .
  • Data center power is a meaningful offset to auto headwinds; strategic focus (new CSO) and customer traction suggest this category’s contribution will expand .
  • EV program volatility persists, but diversified OEM/regional exposure and continued launches mitigate concentration risk; watch Stellantis take rates and GM busbar ramp in FY2026 .
  • Cash flow cadence improves post-Q2: Q3 operating cash flow +$28.1M and FCF +$19.6M, indicating working capital actions are gaining traction despite lower sales .
  • Balance sheet and liquidity: net debt rose in Q2 on cash usage but declined in Q3; covenant compliance maintained; interest expense ~mid-$5–$6M per quarter is a continuing headwind .
  • Near-term trading setup: Q3 seasonality and EV ramp delays temper near-term EPS; Q4 expected stronger vs Q3; data center wins and operational improvements are key catalysts .
  • Medium-term thesis: FY2026 guidance calls for higher sales and notably higher pre-tax income; internal efforts (portfolio transition, leadership rebuild, cost actions) support multi-year margin recovery and cash generation .