Company Overview
Methode Electronics, Inc. (MEI) is a leading global supplier of custom-engineered solutions with a rich 78-year history. Founded in 1946, the company has evolved from a small Chicago-based manufacturer of electrical parts to a diversified provider of cutting-edge mechatronic products serving a wide range of industries.
Business Segments
Methode’s business segments span Automotive, Industrial, Interface, and Medical, showcasing the breadth of its capabilities. In the Automotive segment, the company supplies electronic and electro-mechanical devices and related products to major OEMs, either directly or through their tiered suppliers. This includes integrated overhead and center consoles, hidden and ergonomic switches, transmission lead-frames, insert molded components, LED-based lighting, and sensors that incorporate various sensing technologies.
The Industrial segment manufactures exterior and interior lighting solutions, industrial safety radio remote controls, braided flexible cables, current-carrying laminated busbars, custom power-product assemblies, and high-current high-voltage flexible power cabling systems. These products are utilized across diverse markets such as aerospace, commercial vehicles, data centers, industrial equipment, power conversion, military, telecommunications, and transportation.
The Interface segment provides a variety of high-speed digital communication over copper media solutions for the data center and broadband markets, as well as interface panel solutions for the appliance market. These include copper transceivers, distribution point units, and solid-state field-effect consumer touch panels.
Methode’s Medical segment was previously focused on the Dabir Surfaces business, which provided surface support technology aimed at pressure injury prevention. However, in the first quarter of fiscal 2024, the company made the decision to initiate the discontinuation of this business, eventually selling certain assets in the second quarter.
Historical Context
In its early years, Methode focused on manufacturing electronic components and connectors, quickly establishing a reputation for quality and innovation. This allowed the company to expand its customer base and geographic reach over time. A significant milestone in Methode’s history was its decision to go public in 1958, which provided the resources to fund further growth and diversification.
During the 1970s and 1980s, Methode faced the challenge of adapting to changing technologies and customer needs, particularly with the rise of electronics in the automotive industry. The company responded by investing significantly in new products and manufacturing capabilities to serve this important market segment, a strategic pivot that helped Methode grow and thrive during this period.
More recently, Methode has demonstrated its resilience by navigating global supply chain disruptions and inflationary pressures. The company has addressed these challenges by working closely with suppliers and customers and implementing cost reduction initiatives. Throughout its history, Methode has consistently shown the ability to adapt and innovate in the face of changing market conditions, with its commitment to engineering excellence, global manufacturing capabilities, and strong customer relationships serving as key drivers of its long-term success.
Financial Performance
Over the course of its history, Methode has navigated various industry and economic challenges, demonstrating its resilience and adaptability. The company’s performance metrics have fluctuated, with net income ranging from a high of $122.3 million in fiscal 2021 to a low of -$123.3 million in fiscal 2024. Similarly, annual revenue has varied, from a peak of $1.18 billion in fiscal 2023 to $1.11 billion in fiscal 2024.
In the most recent fiscal year 2024, Methode reported revenue of $1.11 billion and a net loss of $123.3 million. The company’s operating cash flow for fiscal 2024 was $47.5 million, while free cash flow was negative at -$2.7 million.
For the first quarter of fiscal 2025, Methode reported revenue of $258.5 million, representing a year-over-year decrease of 10.8%. The net loss for the quarter was $18.3 million. Operating cash flow for Q1 2025 was $10.9 million, with free cash flow remaining negative at -$2.7 million.
The decrease in revenue was primarily attributed to the roll-off of an EV lighting program in Asia, as well as market weakness for lighting products in commercial vehicle, construction, and agricultural applications. Lower sales volumes, combined with continued elevated costs from program launches, contributed to the net loss in the quarter. Customer program delays also led to absorption challenges.
Liquidity and Financial Position
Methode’s liquidity position has also seen changes, with cash and cash equivalents standing at $161.5 million as of April 27, 2024, down from $172.0 million in the prior fiscal year. As of the end of the first quarter of fiscal 2025, cash and cash equivalents were $111.3 million. The company’s net debt position has increased, reaching $169.4 million as of the end of fiscal 2024, up from $38.5 million in fiscal 2022.
Despite these fluctuations, Methode has maintained a strong financial foundation, as evidenced by its current ratio of 2.35 and quick ratio of 1.50 as of April 27, 2024. The company’s return on assets and return on equity, however, have declined in recent years, from 8.3% and 12.4% in fiscal 2021 to -10.3% and -17.9% in fiscal 2024, respectively.
The company’s debt-to-equity ratio stood at 0.47 as of Q1 2025. Methode has access to a $500 million revolving credit facility, of which $298.6 million was drawn as of Q1 2025, providing additional liquidity if needed.
Recent Developments
Methode’s leadership team has undergone significant changes, with the recent appointment of Jon DeGaynor as the new President and Chief Executive Officer, effective July 15, 2024. DeGaynor, a seasoned executive with 35 years of experience in engineered-products businesses, has been tasked with leading the company’s transformation and positioning it for long-term value creation.
In the first quarter of fiscal 2025, Methode reported net sales of $258.5 million, a decrease of 11% compared to the same period in the prior year. The company’s adjusted pre-tax loss for the quarter was $9.1 million, an improvement from the $13.1 million pre-tax loss reported in the previous quarter. This better-than-expected performance was driven by improvements in gross profit margins, which the company attributed to operational enhancements and pricing actions.
Methode’s electric and hybrid vehicle applications accounted for 18% of net sales in the first quarter, up from 14% in the prior quarter, as the company continues to see growth in this emerging market. The company is forecasting this EV-related revenue to exceed 20% of total sales for the full fiscal year 2025.
Segment Performance
The Automotive segment saw net sales decrease by $23.5 million, or 14.8%, to $134.8 million in Q1 2025 compared to the prior year period. This decrease was primarily due to lower sales in North America and Asia, partially offset by increased demand in Europe, the Middle East, and Africa (EMEA). The segment reported an operating loss of $5.7 million, compared to an operating income of $2.8 million in the prior year period.
The Industrial segment experienced a decrease in net sales of $3.9 million, or 3.4%, to $111.5 million in Q1 2025. The decrease was primarily due to lower sales volumes for lighting products in the commercial vehicle and off-road equipment markets, partially offset by higher sales volumes of power distribution products for electric vehicles and data centers. Operating income for the segment decreased by $7.3 million, or 30.2%, to $16.9 million.
The Interface segment saw a decrease in net sales of $3.0 million, or 19.7%, to $12.2 million in Q1 2025. This decrease was due to lower sales volumes of touch panels for appliances and transceivers for servers. Operating income for the segment decreased by $1.0 million, or 34.5%, to $1.9 million.
The Medical segment, which previously consisted solely of the Dabir business, has been discontinued. The company sold certain assets of the Dabir business towards the end of the second quarter of fiscal 2024 and has now exited this segment.
Future Outlook
Looking ahead, Methode has affirmed its guidance for fiscal 2025, expecting net sales to be similar to fiscal 2024 and adjusted pre-tax income to approach breakeven. The company anticipates that the adjusted pre-tax income for the second half of fiscal 2025 will be significantly stronger than the first half. Methode’s fiscal 2025 guidance assumes depreciation and amortization of $60 million to $65 million, capital expenditures of $50 million to $60 million, and tax expense of $9 million to $11 million.
For fiscal 2026, Methode is forecasting net sales to be greater than fiscal 2025 and pre-tax income to be positive and notably higher than the prior year.
Methode’s transformation journey, led by the new CEO, is focused on several key priorities. These include successfully executing on a large pipeline of over 30 new program launches in fiscal 2025 and another 20 in fiscal 2026, addressing immediate actions to improve supply chain costs and efficiency, and building out the executive team, including a new Chief Financial Officer and Chief Procurement Officer.
The company’s transition is not without its challenges, as it navigates market headwinds in the automotive, commercial vehicle, construction, and agricultural sectors. The EV market was also cited as having a softened near-term outlook, particularly in North America. However, Methode’s diversified portfolio, growing EV exposure, and emphasis on operational excellence provide a solid foundation for its ongoing transformation efforts.
Methode operates globally, with significant sales in North America, Europe, and Asia. Approximately 50% of revenue comes from North America, 38% from Europe, and 12% from Asia. This geographic diversity helps to mitigate regional market fluctuations.
Investors will be closely watching Methode’s progress as the company works to reinvigorate its business and position itself for profitable growth in the years ahead. With its rich history, global footprint, and expanding suite of innovative solutions, Methode appears well-equipped to write the next chapter of its story, despite the near-term challenges it faces in profitability and free cash flow generation.
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