Methode Electronics Inc (MEI) Faces Challenges in Fiscal 2024 Second Quarter

Goodwill Impairment and Operational Inefficiencies Impact Financials

  • Methode Electronics Inc (MEI) reports a net loss of $55.3 million, or $1.55 per diluted share, in the second quarter of fiscal 2024.
  • Net sales decreased to $288.0 million, down from $315.9 million in the same quarter of the previous fiscal year.
  • Goodwill impairment of $56.5 million in North American and European Automotive Reporting Units significantly affected earnings.
  • Adjusted net income stood at $2.4 million, or $0.06 per diluted share, reflecting operational challenges.
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On December 7, 2023, Methode Electronics Inc (MEI, Financial) released its 8-K filing, detailing the financial results for the second quarter of fiscal 2024, which ended on October 28, 2023. The company faced significant headwinds, including a net loss of $55.3 million, or $1.55 per diluted share, compared to a net income of $27.6 million, or $0.75 per diluted share, in the same quarter of the previous fiscal year.

Financial Performance Overview

Methode Electronics Inc (MEI, Financial) experienced a decline in net sales, which were reported at $288.0 million, a decrease from the $315.9 million recorded in the same quarter of fiscal 2023. The company attributed the decline primarily to lower Automotive segment sales across all geographic regions, partially offset by the Nordic Lights acquisition and favorable foreign currency translation. Adjusted for these factors, net sales were down 16.6% year-over-year.

The company's loss from operations was $51.3 million, a stark contrast to the income of $32.8 million in the same quarter of the previous fiscal year. This was mainly due to a goodwill impairment in the Automotive segment and higher freight costs. Adjusted income from operations was $6.0 million, down from $33.3 million in the prior year's quarter.

Segment Performance and Management Commentary

The Automotive segment's net sales decreased by 21.6%, with a loss from operations of $61.5 million, primarily due to the goodwill impairment, lower sales volume, and increased freight and labor costs. The Industrial segment saw an increase in net sales to $120.4 million, with income from operations at $25.7 million. The Interface segment's net sales decreased, resulting in a lower income from operations of $1.0 million. The Medical segment, which is being wound down, reported a slight increase in net sales and a reduced loss from operations.

Methode's President and CEO, Donald W. Duda, commented on the challenges, stating, "Methode had solid sales in the quarter. However, headwinds related to auto program roll offs, a difficult year-over-year comparison in Asia, continued softness in the e-bike market, and the impact from the UAW strike all contributed to our decreased sales." He further noted that "The operational challenges that we have experienced are being actively managed via corrective action plans."

Outlook and Guidance

For the fiscal 2024 third quarter, Methode Electronics Inc (MEI, Financial) expects net sales to be similar to the second quarter and adjusted diluted earnings per share to be modestly higher. The company has revised its full-year guidance for fiscal 2024, expecting net sales to be in the range of $1,140 to $1,180 million and diluted earnings per share to be between -$1.40 and -$1.14. The adjusted diluted earnings per share are projected to be between $0.24 and $0.50.

For fiscal 2025, the company now anticipates net sales to be between $1,150 and $1,250 million, with income from operations as a percentage of net sales ranging from 6% to 8%. These figures have been adjusted primarily due to EV market trends and expected customer delays with EV programs.

Financial Statements and Non-GAAP Measures

The consolidated financial statements show the stark impact of the goodwill impairment and operational challenges on Methode Electronics Inc (MEI, Financial)'s bottom line. The balance sheet reflects an increase in debt and net debt, mainly due to working capital investment and increased property, plant, and equipment purchases. The cash flow statement indicates a negative free cash flow of $11.3 million, compared to a positive $7.0 million in the same quarter of the previous fiscal year.

The company also provided reconciliations for non-GAAP financial measures, which exclude certain expenses and benefits to provide a clearer picture of the company's core operating results and financial performance.

Investors and stakeholders are encouraged to review the full 8-K filing for a detailed understanding of Methode Electronics Inc (MEI, Financial)'s financial position and outlook. The company will also hold a conference call and webcast to discuss these results and provide further insights into its operations and strategies.

Explore the complete 8-K earnings release (here) from Methode Electronics Inc for further details.