Methode Electronics Q4 2026 Earnings Report

Methode Electronics EPS Results

• Actual EPS: -$0.30
• Consensus EPS: -$0.11
• Beat/Miss: Missed by -$0.19
• One Year Ago EPS: N/A

Methode Electronics Revenue Results

• Actual Revenue: $298.10 million
• Expected Revenue: $238.46 million
• Beat/Miss: Beat by +$59.64 million
• YoY Revenue Growth: N/A

Methode Electronics Announcement Details

• Quarter: Q4 2026
• Date: 6/24/2026
• Time: After Market Closes
• Conference Call Date: Thursday, June 25, 2026
• Conference Call Time: 11:00AM ET

Methode Electronics (NYSE:MEI) (NYSE: MEI) is a global designer and manufacturer of custom-engineered products and solutions for automotive, industrial, aerospace, commercial and other specialized markets. The company develops technologies that help customers manage electrical power, transmit signals, sense operating conditions and control equipment.

Its product portfolio includes sensors and sensor-based systems, user-interface and control products, LED lighting and display solutions, power distribution and electrical components, connectors, and other electromechanical assemblies. Methode’s products are used in applications such as vehicle systems, industrial equipment, aircraft, electrical infrastructure and commercial devices.

Founded in 1946, Methode Electronics serves customers through operations and facilities in North America, Europe and Asia. The company works with original equipment manufacturers and other industrial customers to provide application-specific components and integrated solutions. Its business is organized around developing and manufacturing products tailored to the technical and performance requirements of the markets it serves.

Methode Electronics Q4 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Methode said fiscal 2026 was a major step in its transformation, with adjusted EBITDA up 60% to $68 million and free cash flow of about $16 million despite a tougher sales environment. Management credited stronger execution, cost controls, and customer recoveries for the improvement.
• Positive Sentiment: The company negotiated approximately $45 million of customer recoveries tied to EV program delays and cancellations, with about $23 million recognized in fiscal 2026 and the rest expected over the next several years. Management said most of the recovery effort is largely done.
• Positive Sentiment: Data center sales are becoming a key growth driver, rising to about $80 million in fiscal 2026 and expected to increase roughly 60% to $130 million in fiscal 2027. The company said this growth is based on current busbar business with hyperscale customers, and future 800-volt architecture opportunities are not yet included in guidance.
• Neutral Sentiment: Fiscal 2027 guidance calls for net sales of $1.025 billion-$1.075 billion and adjusted EBITDA of $72 million-$82 million, with free cash flow expected to be comparable to fiscal 2026. Management said the year should ramp in the second half, driven by data center growth, better commercial vehicle demand, and operational improvements.
• Positive Sentiment: The company emphasized that its balance sheet strengthened in fiscal 2026, ending with roughly $140 million of cash and net debt of $185 million, down 13% year over year. Management also reiterated that continued debt reduction remains a priority in fiscal 2027.

Presentation

[Operator]

Please note this conference is being recorded. I will now like to turn the conference over to your host, Joni Konstantelos, managing director. You may begin.

[Joni Konstantelos, Managing Director at Riveron]

Good morning, welcome to Methode Electronics' Fiscal 2026 Q4 and full year earnings conference call. Our Fiscal 2026 financial results, including a press release and presentation, can be found on the Methode investor relations website. I am joined today by Jonathan DeGaynor, President and Chief Executive Officer, and Laura Kowalchik, Chief Financial Officer. Please turn to Slide two for our safe harbor statement. This conference call contains certain forward-looking statements which reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements are subject to the safe harbor protection provided under the securities laws. Methode undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in Methode's expectations on a quarterly basis or otherwise. The forward-looking statements in this conference call involve a number of risks and uncertainties.

[Joni Konstantelos, Managing Director at Riveron]

We will also be discussing non-GAAP information and performance measures, which we believe are useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in the conference call materials. The factors that could cause actual results to differ materially from our expectations are detailed in Methode's filings with the Securities and Exchange Commission, such as our 10-K and 10-Q. Please turn to Slide three, I will now turn the call over to Jonathan DeGaynor.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Thank you, Joni. Good morning, everyone. Thank you for joining us for Methode's Q4 and Fiscal 2026 earnings call. I'd like to begin by thanking our global team for their dedication, resilience, and commitment to serving our customers throughout another dynamic year. Turning to Slide three. Fiscal 2026 was an important year for Methode. While we continued to operate in a challenging environment, including EV program delays and cancellations, customer production volatility, commercial vehicle end market softness, and ongoing supply chain and tariff-related complexities, we remained focused on the areas within our control. Our priorities were clear: improve operational execution, strengthen financial performance, simplify the portfolio, generate cash, reduce leverage, and position the company for sustainable long-term value creation.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

For the full year, net sales were approximately $1 billion, down three percent from the prior year, reflecting North American auto program roll-offs, commercial vehicle market softness, portfolio actions, and significant customer program delays. To address and react to the customer program delays, our team negotiated approximately $45 million of customer recoveries, helping offset the impact of customer-driven program changes and creating both near-term and longer-term financial benefits for the company. These recoveries also helped reimburse a portion of the significant development, launch, and other program costs incurred by the company over the past several years. Despite the lower sales environment, adjusted EBITDA increased 60% to $68 million, driven by stronger operational performance, customer recoveries, disciplined cost management, and the benefits of actions taken across our global manufacturing footprint. We also generated approximately $16 million of free cash flow through improved working capital management and inventory reduction initiatives.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

While these results do not yet reflect fully the potential of Methode, they demonstrate meaningful progress. We expanded margins, improved cash generation, continued executing the operational and strategic actions necessary to create a more competitive and profitable company. Turning to Slide four. As a reminder, our transformation journey began approximately two years ago and is focused on improving performance, strengthening the organization, and creating a platform capable of delivering sustained, profitable growth. Before discussing our progress in more detail, I think it is important to provide context on what the company has accomplished during that period, because the headline financial results do not fully reflect the magnitude of the change that has occurred within Methode. First, we've been operating through a massive revenue headwind. Several mature automotive programs rolled off, while anticipated EV program launches were delayed, resized, or canceled by customers.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

As a result, expected replacement revenue did not materialize on the timeline originally anticipated. Despite those headwinds, we improved profitability, generated free cash flow, and strengthened our balance sheet, invested in future growth opportunities, and upgraded significant portions of the organization. Second, we spent considerable time and resources addressing legacy matters, including the SEC investigation, material weakness and internal control deficiencies, inefficient financial processes, and gaps within the finance organization. Today, that work is largely behind us. The SEC investigation has concluded with no enforcement action. Our control environment is substantially stronger. We've rebuilt the finance team, and management can increasingly focus our attention and resources on growth, execution, and customer engagement. Third, we believe the market underestimates the amount of operational work completed across the business.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Over the last 24 months, we rebuilt leadership teams, upgraded talent, implemented a more rigorous operating cadence, strengthened manufacturing execution, improved supply chain discipline, reduced inventory, lowered scrap and freight costs, and increased accountability throughout our global footprint. Collectively, these actions have fundamentally improved the quality of the business. Turning to slide five. We are beginning to see tangible evidence that our efforts are working. Our progress can be viewed through three areas, our people, the strategic actions we've taken, and improved operational performance. Starting with our people, we've invested heavily in building the leadership team and operating model needed for the next phase of Methode's evolution. Over the past two years, we substantially reshaped the organization, including changes to eight of our 10 executive leadership positions and nearly half of the top 100 leadership roles globally.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

The relocation of our headquarters from Chicago to Southfield, Michigan, provided an opportunity to rebuild much of our corporate organization, particularly within finance and HR. We established a stronger team, improved financial rigor and visibility, and created greater accountability across the business. We also upgraded leadership across engineering, product management, sales, operations, and strategy, while expanding capabilities that support our growth initiatives, including data centers. At the same time, we've been transitioning from a decentralized structure to a more global, aligned, and collaborative operating model. This is improving coordination across regions, strengthening accountability, reducing redundant efforts, and driving more consistent execution throughout the company. Turning to strategic actions. Our focus has been on simplifying the portfolio and directing resources toward higher growth opportunities. One of the clearest examples of this redirection is our data center business.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

I'll discuss that in more detail shortly, but we continue to see strong momentum and expected significant growth in fiscal 2027. The actions we have taken with customers reflect the more disciplined commercial approach we have implemented across the organization, which has helped improve program economics and offset a portion of the external headwinds affecting the business. From a portfolio and footprint rationalization perspective, we completed the divestiture of DataMate, generating an $11 million gain and further aligning the company around our long-term growth priorities. We also sold our Harwood Heights, Illinois, facility, generating approximately $5 million in cash proceeds. Operationally, we continue to make measurable progress across our manufacturing footprint. Egypt remains one of our strongest examples of what improved execution can achieve. Through upgraded leadership, better process discipline, and enhanced operational rigor, the business delivered more than 700 basis points of margin improvement during fiscal 2026.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

We also advanced restructuring initiatives in Malta that are expected to generate approximately $5 million of annual savings. In Mexico, our transformation efforts continue to progress. We have strengthened the leadership, improved execution, and gained significantly better visibility into our operational challenges. Although Mexico continues to be impacted by EV program delays, customer schedule changes, and under absorption, we believe the cost reduction and improvement actions underway, as well as the new business that is coming into our Mexico facilities, positions the business for improved performance in fiscal 2027. There is still work to do, particularly in Mexico, but the underlying trends give us confidence that the organization is operating more effectively and is increasingly well-positioned to drive sustainable margin expansion and cash generation going forward. Turning to slide six. The benefits are increasingly evident in our customer relationships as well.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Improved service levels, better supply chain performance, reduced lead times, and stronger coordination between engineering and commercial teams are helping us rebuild credibility through execution. We look forward to sharing more details on business wins and new business bookings during our first quarter call. Turning to slide seven. On the next slide, one area where the benefits of these changes are becoming particularly visible is power solutions. Methode has more than 60 years of expertise designing and manufacturing complex, high-performance power interconnect solutions, often pushing the limits of thermal and electromagnetic constraints to achieving demanding power density, weight, and reliability requirements. Those capabilities have supported a diverse set of end markets over the years, including automotive, commercial vehicles, aerospace, defense, data center, and other industrial applications. Our technology has not changed. What has changed is our ability to leverage the expertise across the company and end markets.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

When run as a collection of independent businesses, Methode was unable to capitalize fully on engineering, manufacturing, and commercial synergies. As we have become a more integrated organization, we are increasingly able to creatively apply our common technologies, manufacturing capabilities, and customer relationships to deliver unique solutions across multiple end markets. This is particularly important given Methode's investments to support vehicle electrification. The engineering expertise developed around advanced power distribution and 800-volt architectures, combined with available capacity within portions of our manufacturing footprint, creates opportunities well beyond traditional automotive applications. The progress we are making reflects not only our technology and manufacturing capabilities, but also the leadership team we have assembled to identify opportunities across end markets and execute on a more integrated strategy.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

These leaders are helping break down historical silos, align resources across businesses, and position the company to generate greater returns from investments made over the past several years. Data centers are emblematic of our change in focus. We have supplied busbars into data center applications for more than 30 years, including early participation in the Open Compute Project. However, without continued focus and investment, Methode lapsed into a role as a second source build-to-print manufacturer. Today, we are engaging directly with hyperscale customers to address their needs for shortened lead times and supply chain stability. Simultaneously, we are bringing creative solutions to them to address AI-driven demand for power density and helping to enable a more efficient future based on automotive-grade, safe deployment of 800 volt DC rack architectures. During fiscal 2026, we generated approximately $80 million of data center related sales.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Based on current visibility, we expect that figure to increase approximately 60% - $130 million in fiscal 2027, with continued growth anticipated beyond that. More broadly, we are directing capital, talent, and engineering resources toward markets where we can leverage existing capabilities, deploy our technologies across multiple end markets, and create differentiated value for our customers. As we look ahead to fiscal 2027, we are shifting our focus in this transformation journey from fix it to growth. The operational challenges that demanded so much of our attention in recent years are largely behind us. Today, our energy is increasingly directed toward winning new business, investing in strategic growth opportunities, and building on the stronger foundation we've established. With that, I'll turn the call over to Laura to review our Q4 and fiscal 2026 results, balance sheet, and fiscal 2027 outlook.

[Laura Kowalchik, CFO at Methode Electronics]

Thank you, John, good morning, everyone. Please turn to slide eight. Unless otherwise noted, all year-over-year comparisons are to the prior year period. As a reminder, fiscal 2026 consisted of 52 weeks compared to 53 weeks in fiscal 2025. Q4 net sales increased 15.9% - $298.1 million. The increase was primarily driven by customer recoveries in the automotive segment, strength in the industrial segment, and favorable foreign exchange, partially offset by the interface segment program roll-offs, and the divestiture of the DataMate business. Fiscal 2026 net sales decreased 2.8% to approximately $1 billion. The decline was driven by program roll-offs in both the automotive segment and interface segment, and the impact of one last week in the fiscal year. These factors were partially offset by customer recoveries in the automotive segment, strength in the industrial segment, and favorable foreign exchange.

[Laura Kowalchik, CFO at Methode Electronics]

Q4 gross profit increased to $72.2 million from $19.6 million, driven by customer recoveries and improved operating performance across our automotive and industrial businesses. For the full year, gross profit increased to $202.2 million from $163.4 million, reflecting stronger operational execution and manufacturing efficiencies. Selling and administrative expenses were $55.6 million in the Q4 compared to $37.4 million. The increase is primarily driven by higher employee compensation costs, $2 million of transaction-related and strategic initiatives costs, and $1 million impairment charge related to the exit of our former corporate office. For fiscal 2026, selling and administrative expenses were $170.3 million compared to $163.9 million. The increase was driven primarily by foreign currency translation, higher employee compensation costs, and restructuring charges, partially offset by lower professional fees. Income tax expense was $12.3 million in the Q4 compared to a tax benefit of $2.1 million.

[Laura Kowalchik, CFO at Methode Electronics]

For fiscal 2026, income tax expense was $25 million compared to $12.5 million. The year-over-year increase for both periods was primarily driven by approximately $4.8 million of additional tax expense related to non-deductible items, and $3.4 million of higher foreign taxes. The comparison was also impacted by a non-recurring tax benefit of $3.9 million recognized in the Q4 of fiscal 2025 related to expiration of certain statutes of limitations. Turning to profitability, fourth quarter adjusted EBITDA was $26.9 million compared to an adjusted EBITDA loss of $7.1 million. For fiscal 2026, adjusted EBITDA increased 60% to $68.2 million. The improvement reflects stronger operational execution across the business, customer recoveries, disciplined cost management, and favorable foreign exchange. As John mentioned, we negotiated approximately $45 million of customer recoveries, resolving claims associated with EV program delays and cancellations.

[Laura Kowalchik, CFO at Methode Electronics]

Approximately $23 million was recognized as revenue in fiscal 2026 and contributed approximately $19 million to earnings. For this portion of the recovery, we expect cash payments of $7 million per year in fiscal 2027 through 2029. We expect to realize the remaining $25 million of customer recoveries through future production volumes and tooling-related reimbursements. Q4 adjusted net loss was $10.4 million, or $0.30 per diluted share, compared to an adjusted net loss of $27.4 million, or $0.77 per diluted share. For fiscal 2026, adjusted net loss was $37.5 million, or $1.07 per diluted share, compared to adjusted net loss of $39.7 million, or $1.12 per diluted share. Turning to our segment results on slide nine. I'll focus primarily on fiscal 2026 performance, as we believe the full-year results best reflect the progress we've made across the business.

[Laura Kowalchik, CFO at Methode Electronics]

Fiscal 2026 Automotive segment net sales were $467.7 million, down 8.1% compared to the prior year. This decrease was primarily driven by the impact of program roll-offs and EV program delays in North America, partially offset by customer recovery agreements and $18 million of favorable foreign exchange. Despite these headwinds, Automotive operating loss improved by $18 million to $30.1 million, reflecting the benefits of customer recovery agreements, operational improvements, and greater commercial discipline across the segment. While North American Automotive continues to be impacted by under-absorption and customer schedule volatility, we are increasingly leveraging engineering, manufacturing, and commercial capabilities across the company, enabling us to utilize available capacity in Mexico to support new business wins across a broader range of end markets. Many of these opportunities carry more attractive margin profiles than the programs they replace while improving fixed cost absorption and further diversifying the business.

[Laura Kowalchik, CFO at Methode Electronics]

We believe these actions position both the segment and the company for improvement. The Industrial segment continued to deliver strong performance, with fiscal 2026 net sales increasing eight percent to $524.3 million and operating income growing 27% to $114.6 million. Approximately half of the sales increase was attributable to favorable foreign exchange. Results were driven by continued momentum in data center power distribution and strong demand for off-road lighting solutions, partially offset by softness in commercial vehicle markets. Our Industrial business is a strong example of the benefits of the more integrated operating model John discussed earlier. By leveraging common engineering expertise, manufacturing capabilities, and customer relationships across the organization, we are increasingly able to deploy our power distribution technologies into attractive growth markets, such as data centers.

[Laura Kowalchik, CFO at Methode Electronics]

This not only supports growth, but also allows us to better leverage our existing manufacturing footprint and demonstrate the value of investments we have made across the business over the last several years. The Interface segment net sales declined 47% to $27.2 million, while operating income decreased 51% to $5 million. The decline primarily reflected the planned roll-off of a major appliance program and the divestiture of the DataMate business as part of our ongoing portfolio optimization efforts. Overall, the segment results demonstrate the benefits of the operational and strategic actions we have taken over the past two years. While sales continue to be impacted by external market factors, we are delivering improved profitability through stronger execution, disciplined cost management, and a more focused portfolio. Turning to slide 10.

[Laura Kowalchik, CFO at Methode Electronics]

We generated free cash flow of $15.6 million in fiscal 2026, compared to an outflow of $15.2 million in the prior year, driven by stronger operating performance and disciplined working capital management. Capital expenditures were $22 million, down 46% year-over-year. We ended the year with approximately $140 million of cash and net debt of $185 million, a 13% reduction from fiscal 2025. Turning to slide 11. Our fiscal 2026 results reflect continued progress in cash generation, balance sheet strength, and capital allocation discipline. We remain focused on reducing leverage while investing the highest return opportunities across the business. Turning to fiscal 2027 guidance on slide 12.

[Laura Kowalchik, CFO at Methode Electronics]

Based on our current market outlook, including third-party industry forecasts, customer production schedules, current U.S. tariff policies, and bank forecasts for currency, we expect fiscal 2027 net sales to be in the range of $1.025 billion-$1.075 billion and adjusted EBITDA to be between $72 million and $82 million, representing an adjusted EBITDA margin of approximately 7%-7.6%. We expect capital expenditures of $25 million-$30 million and free cash flow to be comparable to fiscal 2026. We expect interest expense of $20 million-$22 million, income tax expense of $24 million-$26 million, and depreciation and amortization expense of $58 million-$62 million. Turning to slide 13. The charts provide a bridge from our fiscal 2026 results to the midpoint of our fiscal 2027 outlook for both net sales and adjusted EBITDA. We expect fiscal 2027 net sales to grow approximately three percent compared to fiscal 2026.

[Laura Kowalchik, CFO at Methode Electronics]

Excluding the impact of portfolio refinement activity, including the major appliance program roll-offs, and the DataMate divestiture, as well as customer recoveries in fiscal 2026, net sales are expected to grow approximately eight percent year-over-year. That growth is expected to be driven by approximately $50 million of incremental sales from data center applications, improving commercial vehicle demand, and the net benefit of volume and mix across the portfolio. We expect sales associated with our data center programs to ramp throughout the year. Adjusted EBITDA is expected to grow 13% compared to fiscal 2026. Excluding the impact of fiscal 2026 portfolio refinement activity and customer recoveries, we expect Adjusted EBITDA to grow approximately 82% year-over-year. This improvement is expected to be driven by continued growth in our data center power distribution business, improving demand in commercial vehicles, and favorable volume and mix across the portfolio.

[Laura Kowalchik, CFO at Methode Electronics]

We expect to realize further operational improvements from the actions we have taken across the business, including improved performance in Mexico, benefits from our restructuring initiatives in Europe, and continued execution of our cost reduction programs. Together, these actions are expected to drive meaningful margin expansion and earnings growth in fiscal 2027. For modeling purposes, as you think about the cadence of the year, we expect a lighter Q1 driven by typical seasonality. From there, we expect sales and earnings to ramp throughout the year, resulting in a stronger second half of fiscal 2027 as volume growth and operational improvements continue to build. In summary, fiscal 2026 marked an important year of progress. We improved profitability, generated a positive free cash flow, strengthened the balance sheet, and continued to enhance operational performance across the business.

[Laura Kowalchik, CFO at Methode Electronics]

As we look ahead to fiscal 2027, our focus remains on executing our growth initiatives, expanding margins, generating cash, and further reducing leverage. We believe the actions taken over the last two years have created a stronger foundation for sustainable value creation. With that, I will turn the call back to the operator for questions.

[Operator]

Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Your first question for today is from Gary Prestopino with Barrington.

[Gary Prestopino, Managing Director at Barrington Research]

Hey, good morning, all.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Good morning, Gary.

[Gary Prestopino, Managing Director at Barrington Research]

Congratulations, John and Laura, on what you've done with the company so far. Couple of questions here. First of all, in the data center business, can you just remind me of what you're actually selling into that business? I believe it's busbars, right?

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Yeah. Gary, as we've talked about both the results of fiscal 2026 and the guide for fiscal 2027 are based on our current busbar business into the hyperscalers.

[Gary Prestopino, Managing Director at Barrington Research]

Okay.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

When we reference the future technology and the 800-volt architectures, none of that is in our guide. That is opportunity that we're working on and we're really excited about, but none of that's in the revenue guide for 2027.

[Gary Prestopino, Managing Director at Barrington Research]

Okay. Right now it's just all busbars, which is good.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Correct.

[Gary Prestopino, Managing Director at Barrington Research]

The other thing, could you maybe just, as we talk about these recoveries, these recoveries were from the automotive programs that you guys had taken on over the last couple of years, correct?

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Yes.

[Gary Prestopino, Managing Director at Barrington Research]

Okay. Were these agreements due to the old management team, or were these agreements that you guys had put in place and then the market just really turned against you in a sense of that the volumes that you anticipated were not there?

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Yeah. Gary, if you go back to some of the bridges that we provided in the past with regard to program ramp-ups, these programs were won years ago. As recently as a year and a half ago, when we went through the revenue plan as we laid it out in earnings calls, we talked about an opportunity of a couple hundred million dollars worth of revenue between a couple of these EV program ramp-ups. When we talk about under absorption and some of the challenges that we mentioned during this call, that goes back to things that we anticipated happening and where we had spent the engineering and where we had spent the capital, and we had done all the work in our facilities, particularly in our Mexico facility, to be ready for those ramp-ups.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

With the changes in the dynamics in the North American EV market, that required us to go back to customers. Those were programs that were won years ago, that was revenue that was anticipated. Over the last months, we've been negotiating with the customers to get these recoveries, and it is a team effort to get to the results that we got.

[Gary Prestopino, Managing Director at Barrington Research]

Okay. Do you feel that for I guess we didn't really talk too much about the automotive, but it seems like the automotive is not going to be really driving too much growth this year. Is this program of going back and getting recoveries, is that over, or is that something that we could still anticipate is going to be an impact in fiscal 2027 in terms of the auto programs and the expenses, et cetera, things like that?

[Jonathan DeGaynor, President and CEO at Methode Electronics]

We will see automotive growth on a year-over-year basis.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

As we've said previously, Gary, we had tremendous headwinds in fiscal 2026.

[Gary Prestopino, Managing Director at Barrington Research]

Right.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

The recovery activity is largely done. There are a couple of customers that we continue to talk to, but those programs are much smaller, and the recovery activities are much smaller. We see growth on a year-over-year basis, particularly in North America from an automotive side. Not to the level of materiality that we envision with regard to some of the other pieces of our business.

[Laura Kowalchik, CFO at Methode Electronics]

Also, Gary, of the $45 million of the customer recoveries that we have already negotiated, we said that $19 million is impacting our earnings in FY 2026. We expect to recover the remaining $25 million over time, and that's through future pricing of customer production and tooling recoveries that we collect once our programs go into production. We expect that to come in the next three - four years.

[Gary Prestopino, Managing Director at Barrington Research]

Okay. Yeah, that's what I thought I heard you say. Okay, thank you.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Thanks, Gary.

[Operator]

Your next question for today is from John Franzreb with Sidoti & Company.

[John Franzreb, Analyst at Sidoti & Company]

Yeah. Congratulations, everybody. Thanks for taking the questions.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Good morning, John.

[John Franzreb, Analyst at Sidoti & Company]

go back to the recoveries. $19 million in 2026. How much was in the Q4? If I heard you correctly, this is revenue being recognized with no associated COGS, I'm guessing. Is that how it's dropping right down into the P&L?

[Laura Kowalchik, CFO at Methode Electronics]

Yeah. Hi, John. All of the $22 million of sales was recognized in the Q4.

[John Franzreb, Analyst at Sidoti & Company]

Okay.

[Laura Kowalchik, CFO at Methode Electronics]

There is a little amount of COGS, so there's $19 million flowing through down to the earnings, down to the bottom line.

[John Franzreb, Analyst at Sidoti & Company]

All right. Got it, Laura. Thank you. I was wondering why the gross margin jumped up. That was one of my original questions.

[John Franzreb, Analyst at Sidoti & Company]

Can you just maybe walk us through a little bit on what's going on in the tax line? For the full year, it's been all over the board. Just maybe kind of recap and how should we think about modeling that on an adjusted basis going forward?

[Laura Kowalchik, CFO at Methode Electronics]

As I mentioned, we had $12 million in FY 2025 and $25 million of tax expense in FY 2026. This is primarily due to non-recoverability of non-deductible assets. Higher tax expense of non-deductible amounts, as well as additional foreign tax expense. There was a one-time benefit in FY 2025. That is non-recurring going forward. However, our guidance does have us in the tax expense range that we were in this year, so you can model it appropriately.

[John Franzreb, Analyst at Sidoti & Company]

Got it. Now on a going-forward basis, I think I brought this up last conference call, the commercial vehicle market order book through May is up 112%. I'm curious if, firstly, your order book is similar to that kind of year-over-year growth. Secondly, can you remind us how much in revenue commercial vehicles were in fiscal 2026?

[Jonathan DeGaynor, President and CEO at Methode Electronics]

John, we base our guidance based on programs tied to IHS or third-party forecasts. As you see order books going up, that is in our guidance, and it does move that way.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

The split with regard to commercial vehicle revenue, give me just a second.

[Laura Kowalchik, CFO at Methode Electronics]

One second.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

It's 10% of the total in fiscal 2026.

[John Franzreb, Analyst at Sidoti & Company]

Got it. From what I recall from years past, that was a higher contribution margin business than the overall portfolio.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

I'm sorry, John, say that one more time.

[John Franzreb, Analyst at Sidoti & Company]

In years past, that was a good contribution margin business. Is that still the case?

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Yeah, it still is the case, we continue to refine that portfolio and actually grow that business with our customers. As we've talked about in previous situations, they're looking to shorten their supply chains and strengthen their USMCA presence. So we are actually moving business between regions to support our customers, and we expect that to create additional opportunities for growth for us.

[John Franzreb, Analyst at Sidoti & Company]

Just one last question related to this, I'll get back into queue. From what I recall, some of these products are made in Mexico. Would this be part of the revenue recoveries that helps the Mexico facility? I don't know. Does it actually move into profitability in fiscal 2027?

[Jonathan DeGaynor, President and CEO at Methode Electronics]

The commercial vehicle business has historically not been made in Mexico. There has been a small percentage.

[John Franzreb, Analyst at Sidoti & Company]

Okay.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

We are actually moving business into our Mexico facilities. John, you are exactly right. The capability that we have within our Mexico facilities, it is not just an automotive facility. It is supporting other end markets. It is supporting our data center localization. It is supporting our commercial vehicle localization. Yes, you will see that from a growth from a year-over-year standpoint in the Mexico facility activities. Part of it will be commercial vehicle.

[John Franzreb, Analyst at Sidoti & Company]

Got it. Thanks, John. I will get back into queue.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Thanks.

[Operator]

As a reminder, if you would like to ask a question, please press star one. Your next question is from Luke Junk with Baird.

[Luke Junk, Analyst at Baird]

Morning. Thanks for taking the question. John, hoping we could start with auto. I guess if you back out the EV recovery this quarter, margin's still mixed there. I know that's Mexico mainly in fiscal 2026. If you look kind of in underlying basis was relatively similar year-over-year. A lot going on under the surface, including the improvement that you said in Egypt, but just hoping you can comment on some of the key actions incrementally into fiscal 2027 here to get that business moving back towards breakeven. Thank you.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Thanks for your question, Luke, and you're right. Certainly, the customer recoveries do change that picture. What you see is on a year-over-year basis in our guide, operating performance is worth $15 million. The recoveries were $19 million. Then we see volume and mix as a negative on the automotive side of $18 million. We're driving performance both in Egypt and in Mexico from an operational perspective. If you were to look at a historic revenue outlook, that North American automotive business a couple of years back was well north of $300 million in revenue, and in fiscal 2026, it went as low as $182 million. We see that coming back to close to $200 million in fiscal 2027 and continuing to grow.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

The way in which we look at this is the automotive business overall, which is 46% of our total, is good business. The under-absorption and the challenge that we've had in North America, particularly with regard to these EV program delays, is why it was so important for us to get the recoveries from the customers as we did and as we told you we would, then why we also need to continue to drive cost reduction and drive performance in our plants in Mexico. That then become a foundation that allow us to transfer business in for the commercial vehicle business that we talked about to become a USMCA footprint for our data centers that we've talked about, also as a USMCA footprint for us to win new business that we have talked a bit about, then we'll talk much more in our Q1 call.

[Luke Junk, Analyst at Baird]

That is helpful. Thank you. I want to switch gears to the data center opportunity and the guidance specifically. Just want to understand some of the gating to give you the line of sight to that 60% growth in terms of, it sounds like you've got the orders in hand. Curious if there's any new program ramps in that, just in terms of the constitution of the business here in fiscal 2027, how many customers you're actually working with right now? Thank you.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

The business, as we've talked about it and as we've committed to our shareholders, is that as we talk about guidance, it would be based on customer EDI. That was part of the change within the organization, part of the change to go to vendor-managed inventory and deepen those relationships. We moved from being a spot buy relationship to a 52-week EDI relationship. We're quite confident with regard to the $130 million versus the $80 million. It is two new programs, there are program changes throughout that. These programs move in an 18 - 24-month cycle, that shortening the lead time, improving our engineering capabilities, and being able to respond to those cycles means that we get to capture a larger percentage of market share and wallet share than we did in the past versus the spot buy approach.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Yes, it is launches. Yes, it is new programs. At this point, what's in our guide is the current customer base. We are talking to additional customers. We expect to see that expand. What is in our guide is our current base with the launches that we know right now and the EDI that we have from the customers.

[Luke Junk, Analyst at Baird]

That's helpful. Just to clarify, I think historically, when this was not an area that was in focus, it was mainly a single customer relationship. Are you talking multiple programs with one customer, or is it multiple programs and more than one customer at this point?

[Jonathan DeGaynor, President and CEO at Methode Electronics]

It's multiple programs and multiple customers.

[Luke Junk, Analyst at Baird]

Understood. I'll leave it there. Thank you.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Great. Thanks, Luke.

[Operator]

Your next question for today is a follow-up question from John Franzreb. Your line is live.

[John Franzreb, Analyst at Sidoti & Company]

Yes. Just a quick question on the bridge. The portfolio refinement portion of it, is that just the businesses that you've sold and exited, or is there something else built in there for exiting maybe unprofitable product lines?

[Laura Kowalchik, CFO at Methode Electronics]

John, that is the DataMate business that we sold that we discussed, as well as the appliance program roll-off in our interface segment.

[John Franzreb, Analyst at Sidoti & Company]

Got it. Where are you in the strategic review of the product line profitability process, especially considering all the new people that you brought in? I would imagine that would be something of a priority.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

John, it is still a priority, and we're looking across all of our businesses. What we're trying to do is make sure, not just from a product line profitability, but also from a really return on effort side, that we are putting resources against the places that can drive the greatest growth. You will not be surprised that we will continue to make adjustments over the forthcoming quarters. We don't have anything to announce right now, and our current portfolio is what's in our guide, but yes, we will continue to work on that. That leads to everything from customer negotiations as we look at unprofitable programs to also us deciding on certain product lines or segments that we will expand or that we won't continue with.

[John Franzreb, Analyst at Sidoti & Company]

Got it. John, maybe you could just update us on what is the plan for the interface segment on a go-forward basis?

[Jonathan DeGaynor, President and CEO at Methode Electronics]

That interface business becomes a smaller piece of the company overall. It's de minimis in fiscal 2020. It's less than $5 million in fiscal 2027.

[John Franzreb, Analyst at Sidoti & Company]

Right.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

We don't see it as a place where, when we talk about return on effort, that it is something that we could get to growth. While it was historically a good business and profitable, and we appreciate those customers, it's not a place where we're going to be focusing our time because we have so many opportunities as we grow the commercial vehicle business, as we grow the off-highway lighting business, as we grow our user interface both for off-highway and automotive. As we've talked so much about as we grow our data center business and the next technologies there, we have more opportunities than we have capability to pursue. We have to be refined with regard to how we put our capital to work and how we put our engineering and our talent to work.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

We're adjusting and we're moving resources to support those highest growth long-term opportunities.

[John Franzreb, Analyst at Sidoti & Company]

Got it. Just one last question. You highlighted in the prepared remarks, debt reduction in 2026 versus 2025, and you said managing the balance sheet would also be a priority in 2027. Can we expect continued debt reduction in 2027?

[Laura Kowalchik, CFO at Methode Electronics]

Yes, that's definitely a focus of our capital allocation.

[John Franzreb, Analyst at Sidoti & Company]

Great. Thank you for taking my follow-ups. Congratulations again.

[Jonathan DeGaynor, President and CEO at Methode Electronics]

Thanks again, John.

[Operator]

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Jonathan DeGaynor, President and CEO
• Laura Kowalchik, CFO

Analysts

• Gary Prestopino, Managing Director at Barrington Research
• John Franzreb, Analyst at Sidoti & Company
• Joni Konstantelos, Managing Director at Riveron
• Luke Junk, Analyst at Baird