Exchange: NYSE | Sector: Technology | Industry: Hardware Equipment Parts
Q2 2025
Published: Dec 5, 2024
Earnings Highlights
Revenue of $292.60M up 1.6% year-over-year
EPS of $-0.05 increased by 97.1% from previous year
Gross margin of 19.8%
Net income of -1.60M
""Sales were $293 million, and our adjusted pretax income was $9 million. Aside from the impact of the extra week, sales benefited from higher demand from our Power Products in data centers and electric vehicles."" - Jonathan DeGaynor
Methode Electronics Inc (MEI) Q2 2025 Financial Results: Navigating Challenges and Opportunities in Tech Hardware
Executive Summary
In the second quarter of fiscal 2025, Methode Electronics Inc (MEI) reported sales of $292.6 million, representing a 2% increase year-over-year and a significant 13% increase quarter-over-quarter. The quarter benefited from an additional week due to the fiscal calendar, contributing approximately $20 million to revenue. However, the company faced headwinds from program roll-offs in the electric vehicle (EV) sector and weakness in the commercial vehicle market. Notably, the company maintained compliance with all debt covenants despite a notable decrease in cash flow due to timing issues with accounts payable. Looking ahead, management has reaffirmed its guidance for flat sales and raised adjusted pretax income expectations to approximately breakeven for the fiscal year, bolstered by strong demand in data center applications and promising EV program launches.
Key Performance Indicators
Revenue
292.60M
QoQ: 13.19% | YoY:1.60%
Gross Profit
57.90M
19.79% margin
QoQ: 29.82% | YoY:10.71%
Operating Income
9.40M
QoQ: 225.33% | YoY:118.32%
Net Income
-1.60M
QoQ: 91.26% | YoY:97.11%
EPS
-0.05
QoQ: 91.33% | YoY:97.09%
Revenue Trend
Margin Analysis
Key Insights
**Revenue**: $292.6 million (Q2 2025) vs. $288 million (Q2 2024), a 2% YoY increase. Sequentially, this marked a 13% increase from $258.5 million in Q1 2025.
**Gross Profit**: Improved to $57.9 million with a gross margin ratio of 19.79%. This is a significant increase from the previous quarters due to effective cost management.
**Operating Income**: $9.4 million in Q2 2025, indicating a notable improvement driven by operational efficiencies and reduced freight costs.
**Net Income**: Reported a net loss of $1.6 million, compared to a loss of $18.3 million in Q2 2024, reflecting improved operational execution.
**EBITDA**: Adjusted EBITDA reached $26.7 million, a sequential improvement of $16.9 million, driven by higher sales volumes.
Financial Highlights
Financial Performance Overview
- Revenue: $292.6 million (Q2 2025) vs. $288 million (Q2 2024), a 2% YoY increase. Sequentially, this marked a 13% increase from $258.5 million in Q1 2025.
- Gross Profit: Improved to $57.9 million with a gross margin ratio of 19.79%. This is a significant increase from the previous quarters due to effective cost management.
- Operating Income: $9.4 million in Q2 2025, indicating a notable improvement driven by operational efficiencies and reduced freight costs.
- Net Income: Reported a net loss of $1.6 million, compared to a loss of $18.3 million in Q2 2024, reflecting improved operational execution.
- EBITDA: Adjusted EBITDA reached $26.7 million, a sequential improvement of $16.9 million, driven by higher sales volumes.
- Working Capital: Current ratio at 2.75 indicates strong liquidity, while cash and cash equivalents declined to $97 million from $161.5 million, primarily due to elevated program launch activities.
- Debt Levels: Long-term debt stands at $361.9 million, with a debt-to-equity ratio of 0.501, indicating a moderate leverage level.
- Cash Flow: Negative operating cash flow of $48 million due to timing issues with accounts payable, restricting financial flexibility.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
292.60M
1.60%
13.19%
Gross Profit
57.90M
10.71%
29.82%
Operating Income
9.40M
118.32%
225.33%
Net Income
-1.60M
97.11%
91.26%
EPS
-0.05
97.09%
91.33%
Key Financial Ratios
currentRatio
2.75
grossProfitMargin
19.8%
operatingProfitMargin
3.21%
netProfitMargin
-0.55%
returnOnAssets
-0.12%
returnOnEquity
-0.22%
debtEquityRatio
0.5
operatingCashFlowPerShare
$-1.35
freeCashFlowPerShare
$-1.65
dividendPayoutRatio
-306%
priceToBookRatio
0.43
priceEarningsRatio
-50.08
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management Insights:
- Jon DeGaynor, CEO: "Our sales were on track, while our adjusted pretax income was better than expected. The extra week contributed approximately $20 million to revenues and we maintained solid growth despite challenges in the automotive sector."
- Discussed a 20% rise in EV sales contribution from total revenue and continuous program launches bolstering future growth expectations.
- Laura Kowalchik, CFO: "Despite the cash outflow this quarter, we are in compliance with all debt covenants and expect to reverse some cash outflows in the upcoming quarters. Our guidance for the year includes an increase in adjusted pretax income expectations to approximately breakeven."
"Sales were $293 million, and our adjusted pretax income was $9 million. Aside from the impact of the extra week, sales benefited from higher demand from our Power Products in data centers and electric vehicles."
â Jonathan DeGaynor
"The pipeline of bookings is subject to reduction and/or delay due to customer decisions and market conditions. Our immediate priority is to successfully execute on the large pipeline of new programs that must be launched in the next 18 months."
â Jonathan DeGaynor
Forward Guidance
**Future Outlook**:
Methode Electronics aims to stabilize revenues, with management targeting flat sales for fiscal 2025 compared to fiscal 2024. Anticipated growth from EV programs, particularly new launches, promises continued revenue support. Management highlighted plans to launch over 30 programs in fiscal 2025, positioning the company for improved financial performance in fiscal 2026. The acknowledgment of risks related to market weakness, especially in the commercial vehicle sector, adds caution to future projections. Investors should monitor cash flow trends and market dynamics closely, particularly how they impact supply chain activities.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MEI Focus
19.79%
3.21%
-0.22%
-50.08%
SANM
8.88%
4.62%
2.89%
16.24%
BHE
9.86%
4.15%
1.42%
22.74%
OSIS
35.10%
13.80%
4.58%
18.51%
CLS
10.30%
6.10%
5.52%
17.23%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
**Investment Thesis**: Given the challenges in the commercial vehicle sector and lingering cash flow issues, investors should adopt a cautious outlook. However, the robust pipeline of EV and data center program launches underscores potential for recovery and growth. Management's commitment to operational improvement and market execution will be critical in the upcoming quarters. Strong liquidity and improved margins enhance Methode's resilience in a competitive landscape, making it a watch candidate for investors looking for growth in the technology sector.
Key Investment Factors
Growth Potential
Methode's continued focus on electric vehicle applications and data center solutions presents substantial growth opportunities. The anticipated launch of over 30 energy-related programs may significantly enhance sales in the coming quarters.
Profitability Risk
The primary risks include reduced demand in the EV and commercial vehicle sectors, potential disruptions related to supply chain concerns, and compliance issues under investigation by the SEC, which may affect market perception and operational capabilities.
Financial Position
Methode's financial health highlights a stable cash position despite cash flow challenges. With a manageable debt level and solid liquidity ratios, the company is well-positioned to navigate upcoming market fluctuations.
SWOT Analysis
Strengths
Strong sales growth, especially in data centers and EV segments
Effective cost management resulting in improved profit margins
Strong liquidity position with a solid current ratio
Weaknesses
Recent operational cash flow difficulties leading to negative cash flow from operations
Ongoing compliance challenges and scrutiny from the SEC that may hinder investor confidence
Dependence on automotive demand, particularly in a challenging market environment
Opportunities
Expansion in renewable energy applications and increased demand for EV-related components
Growth potential through new product launches and innovations
Strategic partnerships and projects in European markets that can drive additional revenue streams