METHODE ELECTRONICS INC (MEI)·Q3 2025 Earnings Summary

Executive Summary

• Q3 FY2025 net sales were $239.9M, down 7.5% YoY, with GAAP diluted EPS of -$0.41 and adjusted diluted EPS of -$0.21; gross profit improved YoY despite lower sales, aided by reduced scrap and premium freight .
• Data center power products were a bright spot, with strong demand and ~7% of quarterly sales; EV applications were 24% of sales, though EV dollar sales decreased slightly and program ramp-ups (notably Stellantis) were delayed .
• Free cash flow returned positive at $19.6M; net debt ended at $224.1M, and the company was in full compliance with all debt covenants .
• Q4 FY2025 guidance: net sales $240–$255M and pre-tax income (loss) of -$1M to +$3M; FY2026 guidance reaffirmed for positive, notably higher pre-tax income and sales > FY2025; tariffs are excluded from guidance .
• Relative to prior quarter guidance, Q3 sales came in below the “similar to prior year” expectation and management lowered full-year sales at the midpoint by $77M with a modest adjusted pre-tax reduction ($9M), underscoring ongoing auto-market and EV headwinds despite operational progress .

What Went Well and What Went Wrong

What Went Well

• “Gross profit was higher than the prior year,” driven by improved execution and lower scrap/premium freight; adjusted operating loss improved YoY to -$1.3M from -$2.9M .
• Strong sales of data center power products, with management expecting a record year and noting the quarter’s data center mix at ~7% and FY mix trending ~9% .
• Positive free cash flow ($19.6M) and covenant compliance; net cash from operations was $28.1M despite lower sales .

Quotes:

• CEO: “Our actions… positively impacted our financial results… Despite the lower overall sales, our gross profit was higher than the prior year…” .
• CFO: “Third quarter free cash flow… was $19.6 million… mainly due to lower CapEx spending” .

What Went Wrong

• Auto-market weakness and EV program ramp delays (Stellantis) reduced volumes; EV dollar sales “decreased slightly” despite mix rising to 24% .
• Q3 sales were not “similar to the prior year” as previously guided (actual $239.9M vs $259.5M prior year), reflecting underestimated headwinds .
• Tax valuation allowance ($6.5M) drove higher tax expense and widened GAAP net loss to -$14.4M vs -$11.6M YoY .

Financial Results

Segment breakdown (sales, operating income, margin):

KPIs and balance sheet:

Notes:

• Non-GAAP adjustments in Q3 included $0.9M transformation costs and a $6.5M valuation allowance on deferred tax assets (impacting tax expense and adjusted figures) .
• Covenant compliance maintained; leverage and interest coverage improved vs Q2 .

Guidance Changes

Footnote: Guidance excludes impacts from recent U.S. tariff changes .

Earnings Call Themes & Trends

Management Commentary

• “Our journey to transform Methode is well underway… our gross profit was higher than the prior year… our actions have clearly lowered the breakeven sales point” — CEO Jon DeGaynor .
• “Third quarter adjusted loss from operations was $1.3 million… driven by higher gross profit… lower scrap and premium freight” — CFO Laura Kowalchik .
• “We enjoyed very strong sales in the data center applications in the quarter… expected to result in record sales for those products this year” — CEO .
• “We are comfortably in full compliance with all of our debt covenants” — CFO .

Q&A Highlights

• EV ramp delays: No cancellations; lowered expectations for Stellantis volume/ramp; ongoing commercial discussions on pricing and economics .
• Data center exposure: ~7% of Q3 sales; trending to ~9% for FY; above-average margin opportunity; strategic focus under new CSO .
• Commercial vehicle outlook: NA Class 8 down ~5% in CY2025; broader flat-to-down end-market backdrop behind FY2026 high single-digit organic growth ex-appliances .
• Tariffs: ~1/3 of sales impacted; company communicating that it will not absorb tariff costs; “war room” set up to manage changes; guidance excludes tariffs .
• Awards and launches: $20M awards in quarter, $130M YTD; GM busbar takeover program in FY2026 offsets legacy roll-off; large two-year launch slate (53 programs) .

Estimates Context

• Consensus (S&P Global) revenue and EPS estimates were unavailable due to an SPGI data access limit at the time of request; comparisons to Wall Street consensus could not be verified. Values would ordinarily be retrieved from S&P Global.
• Relative to company guidance, Q3 sales were below the prior expectation of being “similar to the prior year,” given actual $239.9M vs prior-year $259.5M, while adjusted profitability improved YoY due to execution gains despite volume headwinds .

Key Takeaways for Investors

• Execution improvements are real: gross profit up YoY on lower scrap/premium freight and breakeven reduced, positioning MEI for margin leverage when volumes recover .
• End-market headwinds persist: auto and EV demand softness and Stellantis ramp delays pressured volumes; monitor EV adoption trends in NA/EU/China and program timing .
• Data center exposure is a near-term growth vector with above-average margins; strategic build-out under new CSO could expand TAM and support FY2026 growth .
• Cash discipline returning: positive FCF ($19.6M) and covenant compliance reduce risk; watch working capital progress and CapEx timing .
• Guidance reset: Q4 specific ranges and FY2026 reaffirmation are supportive, but FY2025 midpoint sales lowered; near-term trading likely sensitive to EV ramp updates and tariff developments excluded from guidance .
• Segment mix matters: Industrial margins expanded to 20.2% with data center demand; Automotive losses improved slightly; Interface margins healthy; continued mix shift can support profitability .
• Actionable: Focus on execution metrics (scrap, freight, inventory), EV program milestones (Stellantis, GM busbar), and data center order trends as catalysts for estimate and multiple re-rating .