Exchange: NYSE | Sector: Technology | Industry: Hardware Equipment Parts
Q1 2026
Published: Sep 9, 2025
Earnings Highlights
Revenue of $240.50M down 13.3% year-over-year
EPS of $-0.29 increased by 82.1% from previous year
Gross margin of 18.1%
Net income of -10.30M
"“The Methode transformation is firmly on track. There’s still much more to do, but the trajectory is according to plan. We still expect to double our EBITDA for the full year, even with a $100 million decline in sales driven by lower EV demand.”" - Jonathan DeGaynor, President & CEO
Methode Electronics Inc (MEI) QQ1 2026 Results Analysis: Transformation Progress, EV/Data Center Momentum, and Path to EBITDA Doubling
Executive Summary
Methode Electronics reported a soft start to fiscal 2026 with net sales of $240.5 million in QQ1 2026, down 7% year over year (YoY) and 6% sequentially as the company continues to transition away from legacy programs toward a faster-growing mix. The quarter highlighted the resilience of the Power Solutions and Data Center segments, which helped offset program-transition headwinds and supported a meaningful improvement in profitability metrics. Adjusted EBITDA was $15.7–$16.0 million for the quarter, led by aggressive SG&A reductions and better operating discipline, with the company affirming its goal to double EBITDA for the full year despite a projected $100 million decline in EV-related sales.
Financial discipline is evident in the quarterly free cash flow of $18.0 million and three straight quarters of net debt reduction, with net debt down by $41 million over the last three quarters. Cash generation was supported by a solid $25.1 million operating cash flow and a constructive working capital profile (change in working capital of $23.9 million). The balance sheet remains solid, with $121.1 million in cash and total debt of $347.6 million, yielding a net debt position of $226.5 million.
Management reiterated a compelling longer-term growth trajectory anchored in Power Solutions (a ~30% CAGR over the last three years), Data Center power needs, and EV-related interconnect innovations. The company also highlighted ongoing transformation efforts—stabilizing the base, accelerating program launches (more than 30 in 2026), and enhancing global supply chain and engineering collaboration—to position Methode for sustained margin expansion and higher free cash flow when sales recover. The 2026 guidance calls for $900 million to $1.0 billion in net sales and $70–$80 million in EBITDA, implying a margin near 7.9% at the midpoint and a positive free cash flow profile for the year. Investors should monitor the pace of EV demand recovery, Automotive North America headwinds, tariff dynamics, and the execution of the company’s transformation initiatives as key drivers of the earnings trajectory.
Key Performance Indicators
Revenue
240.50M
QoQ: 0.25% | YoY:-13.27%
Gross Profit
43.50M
18.09% margin
QoQ: 5.33% | YoY:40.32%
Operating Income
1.10M
QoQ: 150.00% | YoY:113.58%
Net Income
-10.30M
QoQ: 28.47% | YoY:82.02%
EPS
-0.29
QoQ: 29.27% | YoY:82.10%
Revenue Trend
Margin Analysis
Key Insights
QQ1 2026 net sales: $240.5 million, down 7% YoY and 6% sequentially (vs $258.5 million in QQ1 2025; sequential decline associated with transition from legacy programs).
Gross profit: $43.5 million; gross margin 18.1% (margin at QQ1 2026 reflects the mix shift and cost discipline).
Operating income: $1.1 million (operating margin ~0.46%), up from the prior-year period as SG&A reductions and operational improvements offset a lower top line.
EBITDA: $16.0 million; adjusted EBITDA in the quarter: $15.7 million, up about $5.9–$6.0 million YoY.
Net income: -$10.3 million; EPS: -$0.29 (diluted).
Financial Highlights
Revenue and profitability snapshot
- QQ1 2026 net sales: $240.5 million, down 7% YoY and 6% sequentially (vs $258.5 million in QQ1 2025; sequential decline associated with transition from legacy programs).
- Gross profit: $43.5 million; gross margin 18.1% (margin at QQ1 2026 reflects the mix shift and cost discipline).
- Operating income: $1.1 million (operating margin ~0.46%), up from the prior-year period as SG&A reductions and operational improvements offset a lower top line.
- EBITDA: $16.0 million; adjusted EBITDA in the quarter: $15.7 million, up about $5.9–$6.0 million YoY.
- Net income: -$10.3 million; EPS: -$0.29 (diluted).
- Free cash flow: $18.0 million (third straight quarter of positive free cash flow).
- Cash flow from operations: $25.1 million; capital expenditures: $7.1 million; free cash flow yield supported by lower working capital and disciplined capex.
- Balance sheet: cash at period end $121.1 million; total debt $347.6 million; net debt $226.5 million; total assets $742.1 million; total stockholders’ equity $688.1 million.
- Liquidity and leverage: Three-quarter net debt reduction of $41 million; cash position robust to fund near-term growth investments and working capital needs.
Guidance and forward outlook
- FY26 revenue guidance: $900 million to $1,000 million (note: 2025 was a 53-week year; 2026 is a typical 52-week year).
- FY26 EBITDA guidance: $70 million to $80 million, with second half anticipated to be higher than the first half.
- EBITDA margin guidance: about 7.9% of net sales (vs 4.1% in the prior year period).
- Free cash flow: expected to be positive for FY26 after a negative $15 million in FY25.
- The company reaffirmed a long-term growth trajectory in Power Solutions and Data Centers, with near-term profitability aided by SG&A reductions and improved operating efficiency.
Key drivers and risk factors moving forward:
- Growth drivers include Power Solutions, Data Center interconnects and high-voltage busbars, and expansion in data center applications beyond current end markets.
- Near-term headwinds include softer EV demand in North America and legacy program transitions in Automotive, particularly in Mexico, offset by strength in EMEA and Asia.
- Risks include tariff exposure and currency fluctuations (notably euro-denominated debt), execution risk in consolidation efforts, and the potential pace of EV and data center capex in customers’ networks.
- Management highlighted the potential for higher RFQs and RFPs driven by the global footprint and USMCA-compliant manufacturing in North America, which could provide a demand tailwind in the quarters ahead.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
240.50M
-13.27%
0.25%
Gross Profit
43.50M
40.32%
5.33%
Operating Income
1.10M
113.58%
150.00%
Net Income
-10.30M
82.02%
28.47%
EPS
-0.29
82.10%
29.27%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management themes from the QQ1 2026 earnings call:
- Transformation progress and profit trajectory: CEO Jon DeGaynor stated, “the Methode transformation is firmly on track” and reiterated the goal to double EBITDA for the full year even with a projected EV-related sales decline. He emphasized improvements in SG&A efficiency and operational execution as the primary drivers of earnings growth.
- Cash generation and balance sheet improvement: The company achieved a “third straight quarter of strong free cash flow” and continued net debt reduction, with free cash flow of $18 million and net debt reduced by $41 million over the last three quarters.
- Segment dynamics and growth levers: Management highlighted Data Center Power Product strength (+12% YoY) and ongoing Power Solutions growth, noting a 30% CAGR over the prior three years and the potential to leverage power density and high-voltage innovations in EV, data centers, and defense applications.
- EV vs. data center outlook: While EV demand remains a near-term headwind in North America, the company cited stronger performance in Europe and Asia and continued optimism for a rebound in fiscal 2027, supported by customer forecasts and third-party industry projections.
- Automotive transition and Asia strategy: The leadership attributed the North American softness to legacy program roll-offs (with some stabilization anticipated in fiscal 2027), while Asia serves as the development hub for EV-related products and launch execution.
- Tariffs and USMCA opportunities: The call highlighted tariff stability with modest timing impacts and noted that the USMCA-compliant footprint could generate new RFQs, underpinning a potential near-term uplift in North American demand.
“The Methode transformation is firmly on track. There’s still much more to do, but the trajectory is according to plan. We still expect to double our EBITDA for the full year, even with a $100 million decline in sales driven by lower EV demand.”
— Jonathan DeGaynor, President & CEO
“Power Solutions are clearly a long-term growth engine for Methode, and we are actively investing in this area.”
— Jonathan DeGaynor, President & CEO
Forward Guidance
Assessment of the FY26 outlook based on current guidance and management commentary:
- Revenue trajectory: The $900–$1,000 million FY26 target reflects a modest top-line decline vs. a prior peak, acknowledging a typical 52-week year and continuing program transitions. A return to stronger revenue growth would likely hinge on stabilization and acceleration in Automotive EV programs (particularly in North America) and continued Data Center Power program wins.
- Margin and profitability: The targeted EBITDA of $70–$80 million implies an EBITDA margin of roughly 7.0–8.9% for FY26, with margin expansion driven by ongoing SG&A rationalization, manufacturing improvements, and the leverage of fixed-cost absorption as sales stabilize.
- Free cash flow: A positive FY26 free cash flow is anticipated, reflecting working capital discipline and lower capital expenditures after the program-launch phase. The company expects CapEx in the $24–$29 million range and D&A of $58–$63 million, with interest expense of $21–$23 million and taxes of $17–$21 million.
- Key factors to monitor:
- The pace of EV demand recovery, especially in North America, and its impact on Automotive and Mexico plants.
- The execution of 30+ new program launches and their contribution to backlog and revenue mix.
- The evolution of Data Center power needs and higher-voltage busbar requirements as customers optimize power architectures.
- Exchange rate movements and euro-denominated debt as potential cash flow and balance sheet impacts.
- The effectiveness of the transformation program in sustaining margin expansion and sustaining positive free cash flow as sales rebound.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MEI Focus
18.09%
N/A
N/A
N/A
SANM
8.37%
4.42%
2.89%
15.98%
BHE
10.00%
1.86%
0.33%
94.06%
OSIS
35.30%
8.82%
2.28%
35.43%
CLS
10.30%
4.86%
5.54%
26.49%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
MEI is navigating a multi-year transformation that has begun delivering tangible improvements in operating efficiency, cash flow, and debt reduction while continuing to invest in high-potential Power Solutions and Data Center opportunities. The QQ1 2026 results demonstrate a deliberate shift toward a higher-quality earnings mix, supported by SG&A discipline and a growing contribution from Power/Data Center products. The reaffirmed FY26 target to double EBITDA, together with a pivot to data center and EV-power products, suggests a constructive path to margin expansion as sales regain momentum.
However, the path hinges on several key variables: the speed of EV demand recovery in North America, the successful ramp and profitability of new automotive programs, and the realization of incremental orders from the Data Center and Power Solutions initiatives. The company’s leverage to global megatrends—Data Centers, EV infrastructure, and defense/aerospace power applications—offers meaningful upside, provided execution remains disciplined and the transformation yields sustained cost benefits.
Given the current trajectory, MEI could deliver positive free cash flow in FY26 and progress toward a healthier balance sheet, while keeping investors attentive to end-market cyclicality and geopolitical/tariff dynamics. Relative to peers in the electronics manufacturing services space, MEI’s emphasis on high-margin power and interconnect solutions, coupled with a robust cash-generating profile, positions it as a potential beneficiary of structural shifts in data center and EV power ecosystems. Investors should monitor quarterly program wins, regional mix shifts (notably Europe/Asia vs. North America), and the realization of the stated $70–$80 million EBITDA target as critical near-term indicators of true operating leverage.
Key Investment Factors
Growth Potential
Power Solutions remains the long-term growth engine, with a 30% CAGR over the last three years and ongoing investments in higher-voltage busbars for data centers and power interconnects for EVs. The accelerating Data Center power density requirements and expanding EV architectures offer sizable, multi-year growth opportunities beyond current revenue levels.
Profitability Risk
Near-term headwinds from Automotive program transitions in North America, particularly related to Stellantis and legacy programs; reliance on EV demand rebound timing; currency risk given euro-denominated debt; tariff policy and potential US-based supply chain disruptions; execution risk in consolidating facilities and implementing takeovers/transfer programs.
Financial Position
Solid liquidity with $121.1 million in cash and a net debt position of $226.5 million. The company projects EBITDA expansion to 7.9% of sales on FY26 guidance and positive free cash flow, supported by sustained SG&A reductions and improved working capital efficiency.
SWOT Analysis
Strengths
Strong cash generation: three straight quarters of positive free cash flow (FFO) including $18 million in QQ1 2026.
Balance sheet resilience: cash of $121.1 million and net debt reduced by $41 million over the last three quarters.
Power Solutions DNA and data center expertise: 30% CAGR over 3 years, expanding into high-voltage power, interconnect boards, and data center busbars.
Global footprint and customer diversification: leverage across Automotive, Industrial Interface, and Medical with ongoing RFQ/RFP activity that could broaden customer base.
Weaknesses
Near-term Automotive headwinds in North America due to legacy program transitions; contribution to EBITDA limited in QQ1 2026.
Net income remained negative in QQ1 2026 despite margin improvements, signaling ongoing profitability challenges amid transition.
Revenue decline and program ramp timing create variability in quarterly results and investor visibility.
Opportunities
Data Center power optimization and higher voltage busbars to meet growing demand in hyperscale facilities.
EV power interconnects and high-voltage solutions to improve efficiency and enable faster adoption of EV architectures.
Takeover business development and expanded customer diversity through a transformed operations footprint.
Threats
Cyclicality of automotive/industrial end markets and potential delays in EV roll-out or Stellantis programs.
Tariffs and currency fluctuations (notably euro-denominated debt) could impact cash flow and profitability.
Execution risk in 30+ program launches and consolidation efforts (headquarters and plants) during the transformation.