Exchange: NYSE | Sector: Technology | Industry: Hardware Equipment Parts
Q4 2024
Published: Jul 11, 2024
Earnings Highlights
Revenue of $277.30M down 7.9% year-over-year
EPS of $-1.62 decreased by 804.4% from previous year
Gross margin of 11.2%
Net income of -57.30M
""We are maintaining a sharp focus on cash generation… our cash position at the end of the fourth quarter was aided by the sale of certain non-core assets, including the company aircraft." — Kevin Nystrom" - Kevin Nystrom
In the fourth quarter of fiscal 2024, Methode Electronics Inc reported significant challenges leading to a net loss of $57.3 million. This stark departure from profitability was attributed largely to the roll-off of major automotive programs, operational inefficiencies, and ongoing market weakness in the e-bike and electric vehicle (EV) sectors. Despite these setbacks, the quarter marked a pivotal shift towards cash generation with $24.9 million in net cash provided by operating activities, reflecting the company’s commitment to fiscal prudence amid turbulent market conditions. Going forward, Methode is focused on restructuring and cost reduction to align with its long-term growth aims, particularly in the increasingly competitive EV landscape.
Key Performance Indicators
Revenue
277.30M
QoQ: 6.86% | YoY:-7.93%
Gross Profit
31.00M
11.18% margin
QoQ: -16.22% | YoY:-51.03%
Operating Income
-8.10M
QoQ: -170.00% | YoY:-195.29%
Net Income
-57.30M
QoQ: -393.97% | YoY:-807.41%
EPS
-1.62
QoQ: -390.91% | YoY:-804.35%
Revenue Trend
Margin Analysis
Key Insights
**Revenue:** $277.3 million, down 8% YoY (Q3 2024: $259.5 million, up 6.86% QoQ)
**Gross Profit:** $31 million with a gross profit margin of 11.1%, demonstrating a decline driven by increased costs and reduced sales volume.
**Operating Income:** -$8.1 million; marked by a significant operating loss compared to income of $8.5 million in the previous year.
**Net Income:** -$57.3 million; drastic decline from a net income of $8 million in Q4 2023.
**EPS:** -$1.62, compared to $0.22 diluted EPS in Q4 2023.
Financial Highlights
Financial Performance Metrics:
- Revenue: $277.3 million, down 8% YoY (Q3 2024: $259.5 million, up 6.86% QoQ)
- Gross Profit: $31 million with a gross profit margin of 11.1%, demonstrating a decline driven by increased costs and reduced sales volume.
- Operating Income: -$8.1 million; marked by a significant operating loss compared to income of $8.5 million in the previous year.
- Net Income: -$57.3 million; drastic decline from a net income of $8 million in Q4 2023.
- EPS: -$1.62, compared to $0.22 diluted EPS in Q4 2023.
These metrics reveal a concerning deterioration in profitability, with a need for immediate strategic reassessment.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
277.30M
-7.93%
6.86%
Gross Profit
31.00M
-51.03%
-16.22%
Operating Income
-8.10M
-195.29%
-170.00%
Net Income
-57.30M
-807.41%
-393.97%
EPS
-1.62
-804.35%
-390.91%
Key Financial Ratios
currentRatio
2.76
grossProfitMargin
11.2%
operatingProfitMargin
-2.92%
netProfitMargin
-20.7%
returnOnAssets
-4.08%
returnOnEquity
-7.48%
debtEquityRatio
0.47
operatingCashFlowPerShare
$0.71
freeCashFlowPerShare
$0.45
dividendPayoutRatio
-8.55%
priceToBookRatio
0.56
priceEarningsRatio
-1.88
Net Income vs. Revenue
Expense Breakdown
Management Commentary
1. Operational Challenges: Kevin Nystrom, Interim CEO, reflected on the difficulties faced, stating, "The decline was mostly entirely in our Auto segment across all three of our reporting regions… These operational challenges are driven by increased program launches, labor turnover, and higher overall costs."
2. Future Outlook: “We are fully focused on profitability improvement… our fiscal 2025 will be a year of repositioning the business with the goal of returning the Company to growth and profitability in 2026.†— Kevin Nystrom
3. EV Market Dynamics: The shift in focus towards EVs is critical, with sales comprising 14% of consolidated results, which have been impacted by roll-offs and shifting demand dynamics. Nystrom noted, "However, as we look out several years, EV is still clearly a long-term tailwind for Methode."
"We are maintaining a sharp focus on cash generation… our cash position at the end of the fourth quarter was aided by the sale of certain non-core assets, including the company aircraft." — Kevin Nystrom
— Kevin Nystrom
"This quarter's net sales included $21.8 million from the Nordic Lights acquisition... Excluding Nordic Lights and foreign currency, sales decreased by 15%." — Ron Tsoumas.
— Ron Tsoumas
Forward Guidance
Management anticipates that FY 2025 will stabilize with net sales expected to be similar to FY 2024 with improved adjusted pre-tax income approaching breakeven in the latter half of the fiscal year. The company is focused on several initiatives, including cost reduction strategies in sourcing and logistics, which aim to mitigate the operational inefficiencies currently undermining profitability. On a strategic note, management indicated that launching of several new programs will be pivotal for fiscal growth, signaling a need for performance metrics and progress tracking.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MEI Focus
11.18%
-2.92%
-7.48%
-1.88%
SANM
8.49%
4.44%
2.60%
15.59%
BHE
10.30%
4.94%
1.63%
14.04%
OSIS
33.00%
13.90%
5.17%
13.06%
CLS
9.97%
5.61%
4.79%
10.37%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
The investment outlook for Methode Electronics reflects a company currently realigning its operational strategy following a challenging year. Investors are cautioned about near-term losses but should note the emphasis on cost savings and the potential recovery through EV and other program awards. The intended restructuring coupled with asset sales points to a commitment for healthier operations moving forward. For long-term investors, keeping an eye on management's execution on its realistic goals for growth and profitability is critical, especially heading into FY 2026 where operational stability and profitability metrics are expected to improve significantly.
Key Investment Factors
Growth Potential
The growth potential is tied to the successful launch of EV-related products. With annual program awards of $140 million in FY 2024 primarily driven by EV enhancements, the emphasis on clean energy vehicles presents a significant upside if capitalized effectively.
Profitability Risk
Risks include continued volatility in the automotive sector, high operational costs related to program launches, and dependency on shifting market trends in EV adoption which may not meet the heightened expectations previously projected by management.
Financial Position
The financial position shows vulnerabilities with growing operational losses but also resilience with $161.5 million in cash and a declining net debt position, indicating cash generation capacity following sales of non-core assets.
SWOT Analysis
Strengths
Strong cash position with $161.5 million at end of Q4 2024 and positive cash flow generated during the latter half of the fiscal year.
Diverse product offerings across automotive, industrial, interface, and medical segments.
Recent acquisition of Nordic Lights providing potential new revenue streams.
Weaknesses
Significant operational inefficiencies within the North American Automotive segment, contributing to substantial losses.
Dependence on automotive programs that are seeing roll-offs and new launches which could lead to transitional instability.
Opportunities
Expansion of EV projects and programs potentially leads to higher revenue as the market grows; current awards of $141 million in annual sales at full production;
Investing in efficiency improvements in sourcing and operational processes could bolster profit margins.
Potential for future acquisitions to leverage positioning in the technology and automotive sectors.
Threats
Economic slowdown affecting consumer spending on Autos and EVs, raising concerns over demand growth for crucial segments.
Increased competition in the EV market presents challenges to maintain market share; softening near-term outlook requires agile management.