Release Date: July 10, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Methode Electronics Inc (MEI, Financial) achieved $26 million in free cash flow in the fourth quarter, marking the best quarter since Q4 of fiscal '23.
- The company set records for data center power product sales, finishing the year with over $80 million in sales, nearly double the previous year.
- Operational improvements led to a $12 million improvement in tooling recovery and a $22 million reduction in accounts receivable.
- Despite a projected $100 million decline in sales for fiscal '26, MEI expects to double its EBITDA due to operational improvements.
- The company successfully launched 22 new programs in fiscal '25 and expects to launch another 30 in fiscal '26, indicating strong future growth potential.
Negative Points
- MEI experienced a $22 million adjusted loss from operations in the fourth quarter, with $15 million attributed to unplanned inventory adjustments.
- The company faced significant challenges due to reduced, delayed, or canceled EV programs, particularly from Stellantis, impacting future demand projections.
- Historical warranty and quality issues contributed approximately $5 million to the quarterly loss.
- MEI's fiscal '26 sales are expected to be approximately $100 million lower than fiscal '25 due to soft market outlook and EV program delays.
- The company had to amend its credit agreement, reducing the facility capacity and revising covenant ratios, indicating financial constraints.
Q & A Highlights
Q: Jon, you mentioned that despite a $100 million sales decline, you expect EBITDA to rise in fiscal '26. Can you explain the key earnings levers given this sales decline?
A: Jonathan DeGaynor, President and CEO, explained that the company has improved its launch processes, reducing concerns about incremental costs for new launches. The significant drop in EV demand has created a revenue gap, but several one-off expenses from fiscal '25, such as warranty reserves and restructuring costs, are either eliminated or improved, supporting the expectation of doubling EBITDA despite lower sales.
Q: Regarding the 30 launches in fiscal '26, how many are related to EV platforms, and how do you mitigate risks of delays or volume changes?
A: Jonathan DeGaynor stated that about 50% of the launches are related to EV platforms. The company uses third-party data to guide its projections and has taken steps to reduce costs and utilize its engineering and fixed assets for other markets, such as data centers, to mitigate risks associated with EV program delays or cancellations.
Q: Can you clarify the impact of Stellantis on your revenue expectations and how it has changed?
A: Jonathan DeGaynor noted that Stellantis' program volumes dropped significantly, leading to a $200 million swing from initial projections. The company is actively working with customers to address these changes and is leveraging its capabilities to support growth in other areas, such as data centers.
Q: How does the reduction in dividend relate to your financial strategy and covenant changes?
A: Jonathan DeGaynor explained that the dividend reduction aligns with peer yields and provides flexibility for working capital. It also considers covenant requirements, ensuring the company maintains financial stability while addressing market challenges.
Q: With the automotive revenue decline, do you expect growth in the industrial side of the business?
A: Jonathan DeGaynor confirmed that growth is expected in the industrial segment, particularly in data centers and lighting, which will help balance the business and reduce reliance on automotive revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
