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Since my last article about Methode Electronics, Inc. ( MEI ), I have been following it in hopes of opening a position if the situation improves. In that time, the company’s strategic direction did not change much; MEII’m an independent equity trader and licensed financial advisor focused on uncovering high-upside opportunities in overlooked sectors — especially small-caps, energy, commodities, and special situations. My investment strategy is rooted in the CAN SLIM framework but goes further. I look for fu ...

Core Insights - Methode Electronics (MEI) has not significantly changed its strategic direction since the last analysis, indicating a stable but potentially stagnant position in the market [1] Company Analysis - The company is being monitored for potential investment opportunities as the situation evolves, reflecting a cautious approach to entering a position [1] - The focus is on identifying high-upside opportunities in overlooked sectors, particularly small-cap stocks, energy, and commodities, which may suggest a strategic interest in these areas [1] Investment Strategy - The investment strategy employed is based on the CAN SLIM framework, emphasizing fundamental momentum indicators such as Earnings Per Share (EPS), Return on Equity (ROE), and revenue growth [1] - Additional analytical tools like GARCH and Granger causality are utilized to assess risk and volatility, indicating a sophisticated approach to market analysis [1] - The strategy aims to build conviction through a combination of technical, fundamental, and macroeconomic factors, highlighting a comprehensive investment methodology [1]

The company missed the consensus analyst bottom-line estimate for its fiscal second quarter, but this might be the least of its problems.Investors unplugged from Methode Electronics (MEI 10.93%) stock on Thursday, after the company published quarterly results that featured erosion in key metrics. Its shares lost nearly 11% of their value that day, in a trading session that saw the benchmark S&P 500 index creep up by 0.1%.Across-the-board declinesIn Methode's fiscal second quarter of 2026, the company's net ...

Financial Data and Key Metrics Changes - Net sales for Q2 2026 were $247 million, up 3% sequentially, but down 16% year-over-year from $292.6 million in Q2 2025 [4][11] - Adjusted EBITDA for Q2 2026 was $17.6 million, down $9.1 million from the same period last year, but increased by $1.9 million sequentially [11] - Adjusted net loss for Q2 2026 was $6.7 million, a $11.9 million change from fiscal 2025, with a sequential reduction of $1.1 million [11] - Free cash flow usage was $11.6 million in Q2 2026, an improvement of $46.8 million year-over-year from a usage of $58.4 million in Q2 2025 [14] Business Line Data and Key Metrics Changes - The power solutions segment is expected to maintain sales in line with fiscal 2025, with a focus on data centers and vehicle electrification as growth drivers [6][8] - Data center revenue for Q2 2026 was in line with expectations, showing potential for growth as the company transitions to vendor-managed inventory [22][23] Market Data and Key Metrics Changes - Automotive sales represented 44% of total sales, with EVs accounting for 41% of that, indicating a significant reliance on the automotive sector [19][52] - EV exposure in North America is limited, with total revenue year-to-date for EVs being less than $12 million [20] Company Strategy and Development Direction - The company is undergoing a transformation to improve operational performance, focusing on leadership upgrades and cross-functional teamwork [6][10] - A strategic relocation of the corporate headquarters to Southfield, Michigan, aims to enhance operational efficiency and customer proximity [7] - The company is committed to long-term growth investments aligned with megatrends in data centers and vehicle electrification [6][8] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of fiscal 2026, expecting stronger results compared to the first half [14][15] - The company is focused on improving execution and reliability, which is reflected in the financial results [10][16] - External market volatility, including tariffs and economic turbulence, continues to pose challenges, affecting revenue predictability [36][67] Other Important Information - The company reaffirmed its full-year sales guidance of $900 million to $1 billion and Adjusted EBITDA guidance of $70 million to $80 million [14][15] - The transition to vendor-managed inventory for data center customers involved a $10 million inventory bill [13] Q&A Session Summary Question: Trends in the power business regarding EV and data center growth - Management noted that EV headwinds have already impacted revenue, particularly in North America, while data center growth is expected to accelerate [19][22] Question: Guidance comfort level for the lower or upper end - Management indicated that external volatility prevents narrowing guidance, maintaining a cautious outlook [36] Question: Improvement in industrial operating profit - The improvement is attributed to better plant performance rather than solely data center growth [37] Question: Roadmap to returning to profitability - The focus will be on cost-cutting and ramping up new programs, with expectations for revenue growth as market conditions improve [41][42] Question: Cash outflow in the quarter - The cash outflow was attributed to seasonal timing and increased receivables, with some collections occurring after the quarter ended [62][65] Question: Tariff impacts and updates - No new updates on tariffs were provided, with ongoing efforts to manage their impact on operations [67] Question: Outlook for calendar year 2026 in problematic end markets - Management anticipates slight improvements in the automotive sector and commercial vehicles, particularly in the latter half of fiscal 2026 [70]

Financial Data and Key Metrics Changes - Net sales for the quarter were $247 million, up 3% sequentially, but down 16% year-over-year from $292.6 million in fiscal 2025 [4][11] - Adjusted EBITDA rose 12% sequentially to $18 million, but decreased by $9.1 million compared to the same period last year [4][11] - Adjusted net loss for the second quarter was $6.7 million, a $11.9 million change from fiscal 2025, with a sequential reduction of $1.1 million [11] - Free cash flow improved by $47 million year-over-year, with a usage of $11.6 million in the second quarter compared to $58.4 million in the same quarter last year [5][13] Business Line Data and Key Metrics Changes - The power solutions segment is aligned with key megatrends, including data centers and vehicle electrification, with expectations for long-term growth [6][8] - Data center activity generated over $80 million in annual sales last year, with continued growth anticipated [7][8] - The company expects power sales in fiscal 2026 to be in line with fiscal 2025, with a sales acceleration expected in the future [8] Market Data and Key Metrics Changes - Automotive sales represent 44% of total sales, with EVs accounting for 41% of that, but North American EV sales were less than $12 million year-to-date [19][20] - The company has faced headwinds in the EV market primarily due to delays in launches, particularly in North America [19][20] - The data center segment is expected to grow, with the transition to vendor-managed inventory providing opportunities for market share [21] Company Strategy and Development Direction - The company is undergoing a transformation to improve operational performance, with significant management attention on facilities in Egypt and Mexico [5][6] - A strategic relocation of the corporate headquarters to Southfield, Michigan, aims to enhance operational efficiency and customer proximity [7] - The company is focused on leveraging synergies and improving execution to build credibility with customers and shareholders [10][42] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of fiscal 2026 being stronger, reaffirming full-year sales guidance of $900 million to $1 billion and Adjusted EBITDA of $70 million to $80 million [5][14] - The company is navigating a dynamic operating environment with external volatility impacting revenue predictability [34][66] - There is confidence in the company's ability to return to profitability through cost-cutting and revenue growth initiatives [41][42] Other Important Information - The fiscal 2026 is a 52-week year, while fiscal 2025 was a 53-week year, affecting year-over-year comparisons [11] - The company ended the quarter with $118.5 million in cash, up $21.5 million year-over-year, and net debt decreased by $29.6 million [12][13] Q&A Session Summary Question: Trends in the power business regarding EV and data center growth - Management noted that EV headwinds have already been accounted for, with optimism about data center growth and the impact of vendor-managed inventory [19][21] Question: Guidance comfort level for the second half of the year - Management indicated that external volatility prevents narrowing guidance, but performance has improved compared to previous periods [34] Question: Improvement in industrial operating profit - The improvement is attributed to better plant performance rather than solely data center growth [36] Question: Roadmap to returning to profitability - The focus will be on cost-cutting and ramping up new programs, with expectations for revenue growth as market conditions improve [41][42] Question: Cash outflow in the quarter and receivables - The cash outflow was seasonal, with some receivables collected after the quarter ended [62][64] Question: Tariff impacts and updates - There are no new updates on tariffs, and the company continues to work with customers to mitigate impacts [65] Question: Outlook for calendar year 2026 in problematic end markets - Management expects slight improvements in the automotive sector and commercial vehicles in the latter half of fiscal 2026 [68]

Methode Electronics Earnings Presentation Second Quarter Fiscal 2026 December 4, 2025 Forward-Looking Statements This presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, when made, our current views with respect to current events and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to our operations and business environment, which may cause our actual resu ...

Financial Performance - Net sales decreased by $45.7 million, or 15.6%, to $246.9 million in the three months ended November 1, 2025, compared to $292.6 million in the same period of 2024 [122]. - Net sales decreased by $63.7 million, or 11.6%, to $487.4 million in the six months ended November 1, 2025, compared to $551.1 million in the same period of 2024 [123]. - Net loss for the three months ended November 1, 2025, was $9.9 million, compared to a net loss of $1.6 million for the same period in 2024, indicating a significant increase in losses [135]. - The company experienced a net loss of $20.2 million for the six months ended November 1, 2025, compared to a net loss of $19.9 million for the same period in 2024 [169]. Cost and Expenses - Cost of products sold decreased by $35.5 million, or 15.1%, to $199.2 million in the three months ended November 1, 2025, representing 80.7% of net sales [124]. - Selling and administrative expenses decreased by $3.6 million, or 8.5%, to $39.0 million in the three months ended November 1, 2025 [127]. - Interest expense, net was $5.7 million in the three months ended November 1, 2025, compared to $6.2 million in the same period of 2024 [130]. - Income tax expense was $5.7 million in the three months ended November 1, 2025, compared to $3.2 million in the same period of 2024 [133]. Segment Performance - Automotive segment net sales decreased by $35.0 million, or 24.1%, to $110.5 million in the three months ended November 1, 2025, compared to $145.5 million in the same period in 2024 [138]. - Gross profit for the automotive segment fell by $12.0 million, or 84.5%, to $2.2 million in the three months ended November 1, 2025, with gross profit margins decreasing to 2.0% from 9.8% in the prior year [142]. - Industrial segment net sales increased by $7.5 million, or 3.1%, to $250.4 million in the six months ended November 1, 2025, compared to $242.9 million in the same period in 2024 [148]. - Industrial segment gross profit rose by $11.3 million, or 16.0%, to $82.1 million in the six months ended November 1, 2025, with gross profit margins increasing to 32.8% from 29.1% in the prior year [150]. - Interface segment net sales decreased by $6.2 million, or 39.5%, to $9.5 million in the three months ended November 1, 2025, compared to $15.7 million in the same period in 2024 [154]. - Interface segment gross profit decreased by $2.4 million, or 46.2%, to $2.8 million in the three months ended November 1, 2025, with gross profit margins decreasing to 29.5% from 33.1% in the prior year [155]. Liquidity and Capital Structure - As of November 1, 2025, the company had $118.5 million in cash and cash equivalents, with $61.5 million held in subsidiaries outside the U.S. [160]. - The company has a share buyback authorization of up to $200.0 million, which commenced on June 17, 2024, with no shares purchased as of November 1, 2025 [161]. - The outstanding balance under the revolving credit facility was $294.5 million in euro-denominated borrowings and $40.0 million in U.S. denominated borrowings as of November 1, 2025 [167]. - Net cash provided by operating activities was $17.7 million for the six months ended November 1, 2025, compared to a net cash used of $37.1 million for the same period in 2024 [170]. - Capital expenditures were $11.3 million for the six months ended November 1, 2025, down from $24.0 million in the same period in 2024 [171]. - The company paid cash dividends of $4.7 million in the six months ended November 1, 2025, compared to $10.0 million in the same period in 2024 [173]. Compliance and Financial Agreements - The company was not in compliance with a covenant restricting certain restricted payments for the quarter ended August 2, 2025, leading to a waiver agreement with Bank of America [164]. - The Amended Credit Agreement provides for a secured multicurrency revolving credit facility of $400 million, maturing on October 31, 2027 [166]. - The company anticipates compliance with financial covenants in the Amended Credit Agreement based on current projections, but future compliance is uncertain [168]. Market Challenges - The company continues to face supply chain challenges, particularly in procuring automotive-grade semiconductors, which may impact financial results [118]. - The adoption of electric vehicles (EVs) has been slower than anticipated, potentially affecting the company's financial condition [117].

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