Methode Electronics Q1 Earnings Call Highlights

Key Points

• First-quarter sales rose 10.4% to $265.4 million, driven by a 27% increase in industrial revenue from data-center power distribution and off-road lighting. Adjusted EBITDA fell to $13.7 million, while the company posted an adjusted net loss of $7.7 million.
• Methode is pursuing broad operational restructuring and footprint consolidation, including cost reductions in Mexico, production transfers from Asia, China site consolidation and facility exits in the U.K. and Germany. Management cited significant margin improvements in Mexico, Egypt and Malta.
• The company reaffirmed fiscal 2027 guidance of $1.025 billion–$1.075 billion in sales and $72 million–$82 million in adjusted EBITDA. New awards totaling roughly $400 million in lifetime revenue largely involve hybrid vehicles and localized North American production, while 800-volt data-center technology remains outside current guidance.

Methode Electronics NYSE: MEI reported a 10.4% increase in first-quarter fiscal 2027 sales, driven by industrial-segment momentum in data center power distribution and off-road lighting, while management reaffirmed its full-year outlook and detailed further operational restructuring efforts across its global manufacturing footprint.

Net sales for the quarter totaled $265.4 million, compared with the prior-year period, while gross profit rose to $47.7 million from $43.5 million. The company reported an adjusted net loss of $7.7 million, or $0.22 per diluted share, unchanged from the adjusted per-share loss a year earlier. Adjusted EBITDA declined to $13.7 million from $15.7 million.

President and Chief Executive Officer Jon DeGaynor said the company’s higher sales volume provided “real profitability benefits,” supported by operational improvements, though those gains were offset by one-time costs and investments in talent and organizational capabilities.

Industrial Growth Offsets Automotive and Interface Pressures

The industrial segment was the main contributor to quarterly growth. Industrial sales increased 27% to $156.8 million, fueled by continued demand for data center power-distribution products and off-road lighting solutions. The segment’s operating income rose 19% to $31.6 million, helped by higher sales volume and mix, customer recoveries and operational improvements.

Methode recognized $2.2 million in recoveries from commercial vehicle lighting customers during the quarter. Industrial profitability was partly offset by material and freight inflation, expedited freight costs and investments in talent and capabilities.

Automotive sales were nearly flat, declining 0.4% to $105.7 million. Lower volumes in Europe, the Middle East and Africa, as well as Asia, were mostly offset by higher North American sales. The automotive operating loss narrowed 6% from the prior year to $11.7 million, reflecting lower inventory adjustments and reduced scrap, partly offset by higher material costs.

During the question-and-answer session, DeGaynor said North American automotive results have benefited from customer and product exposure to SUVs and pickup trucks, while China and EMEA have faced revenue headwinds. He said the company expects automotive revenue to remain roughly flat for the fiscal year, with profitability improvement expected to come primarily from structural cost reductions and facility performance rather than revenue growth.

The interface segment’s sales fell 73% to $2.9 million, primarily reflecting the divestiture of the DataMate business and the planned roll-off of a major appliance program. The segment recorded an operating loss of $800,000, compared with operating income of $3 million in the prior-year quarter.

Operational Actions Focus on Mexico and Footprint Consolidation

Management highlighted the company’s transition to a global operating model, including leadership additions in operations, manufacturing strategy, quality, process engineering and supply-chain planning. The company has also upgraded site leadership in Egypt, Malta, Mexico and China over the past 18 months.

DeGaynor said Egypt delivered more than 700 basis points of margin improvement in fiscal 2026, with further savings expected in fiscal 2027. In Malta, restructuring and operating improvements are expected to generate approximately $5 million in annualized savings through lower scrap, better quality and other efficiencies.

Mexico remains a key focus after regional sales fell more than 50% between fiscal 2023 and fiscal 2026, largely due to a major OEM user-interface program rolling off and delays and cancellations in North American EV programs. The reduced demand left the facilities with underutilized capacity and a fixed-cost structure that was not aligned with revenue, DeGaynor said.

The company has implemented new leadership, operating procedures and structural cost reductions in Mexico. Management said Mexico facilities posted more than 500 basis points of year-over-year margin improvement in the first quarter, even without material sales tailwinds. DeGaynor said the largest driver of improvement has been better plant execution, including reductions in premium freight, scrap and direct labor, rather than production transfers alone.

Methode has begun shifting some production from Asia to Mexico, using available capacity to serve automotive, data center and commercial-vehicle customers seeking USMCA-compliant supply. The company also plans to consolidate sites in China and exit one facility in the United Kingdom and at least one in Germany.

New Awards Target Hybrid Programs and Localized Supply

The company booked new awards representing $75 million of peak annual revenue and approximately $400 million in estimated lifetime revenue. While management initially described the awards as spanning commercial vehicle and automotive power applications, DeGaynor clarified during the call that less than one-third of the total was tied to commercial vehicles.

The majority of the awards are with new automotive customers for hybrid vehicle applications, rather than pure EV programs. All of the automotive awards are expected to be manufactured in North America, primarily in Mexico, according to DeGaynor. The commercial-vehicle award is for a power product and is not related to EVs.

Management said the programs are expected to begin launching late in the next fiscal year or afterward, reflecting the development and ramp timelines typical of automotive and commercial-vehicle programs.

DeGaynor attributed the awards to customers reassessing supply chains amid tariff exposure, lead-time considerations and quality requirements. He said Methode’s manufacturing footprint and power-product capabilities have created opportunities with new customers seeking more localized production.

Data Center Investments Continue, but 800-Volt Technology Is Not in Guidance

Methode said first-quarter data center sales included some demand that was pulled forward from later in the year. Chief Financial Officer Laura Kowalchik said the timing shift does not change the company’s full-year outlook, including its previously cited expectation of $130 million in data center revenue.

The company is allocating engineering and commercial resources to data center opportunities, including work on potential 800-volt DC rack architectures intended to address AI-driven power-density requirements. However, DeGaynor said 800-volt technology is not yet in the market, has not received business awards and is not included in fiscal 2027 guidance.

He said the company expects to demonstrate proof of concept later in the fiscal year, with a particular focus on ensuring that high-voltage, high-current data center architectures can be deployed safely.

Guidance Reaffirmed as Debt Declines

Methode reaffirmed fiscal 2027 guidance for net sales of $1.025 billion to $1.075 billion and adjusted EBITDA of $72 million to $82 million, implying an adjusted EBITDA margin of about 7% to 7.6%. The company continues to expect free cash flow comparable with fiscal 2026.

First-quarter adjusted EBITDA faced a $6.7 million headwind from portfolio refinements and premium freight associated with the Asia-to-Mexico production transfer. Kowalchik said the premium-freight and transfer-execution issues totaled $2.3 million and have been resolved, with only minimal premium freight expected going forward. The company said volume, mix and operational execution provided a net positive $4.7 million underlying contribution.

At quarter-end, Methode had $116.2 million in cash and cash equivalents and total debt of $310.5 million, down $14.5 million from fiscal year-end. The decline reflected $10 million of net debt repayments and a $4.5 million favorable currency impact. Subsequent to the quarter, the company extended the maturity date of certain revolving loans by 12 months to October 2028 and reduced its revolving credit facility to $375 million from $400 million.

Free cash flow was an outflow of $10.9 million, compared with an $18 million inflow in the prior-year period, largely due to planned inventory investment supporting the transfer of production from Asia to Mexico. Methode also announced plans to hold an investor day on Dec. 17 at the New York Stock Exchange.

About Methode Electronics (NYSE:MEI)

Methode Electronics, Inc is a Chicago-based global manufacturer of custom-engineered electronic and electromechanical components and assemblies. Founded in 1946, Methode specializes in providing solutions that integrate electrical connectors, sensors, switches, human-machine interface devices and power distribution modules. The company's product portfolio addresses complex application requirements across a broad range of end markets, including automotive, industrial, energy, healthcare and data/telecommunications.

In its automotive segment, Methode develops advanced connector systems, circuit protection devices and thermal management solutions for internal combustion, hybrid and electric vehicles.

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