Methode Electronics (ticker: NYSE:MEI), a leading manufacturer of component and subsystem devices, reported a 9% decrease in second-quarter fiscal 2024 sales, totaling $288 million. This decline was primarily due to program roll-offs, delayed sales in China as a result of COVID-19 disruptions, a softer e-bike market, and the impact of the UAW strike. Despite the challenges, the company maintains a positive outlook for fiscal 2025, driven by a focus on electric vehicle (EV) programs and market growth. However, Methode has adjusted its fiscal 2025 guidance downward in response to program delays and evolving market trends in the EV sector. The company is also continuing its share repurchase program and anticipates a return to positive free cash flow in the coming fiscal year.
Key Takeaways
- Methode Electronics reported a 9% drop in Q2 sales year-over-year.
- Adjusted income from operations stood at $6 million.
- Diluted earnings per share fell to a negative $1.55, influenced by goodwill impairment and other factors.
- The company's outlook for fiscal 2025 remains positive, though guidance has been reduced.
- Methode is focusing on improving operational efficiency and executing new program launches.
- The EV program, with an emphasis on last-mile delivery vehicles, is seen as a key growth driver.
Company Outlook
Methode Electronics has adjusted its full-year net sales range for fiscal 2024 to remain unchanged at $1.140 billion to $1.180 billion. However, the expected diluted earnings per share range for the same period has been revised to a negative $1.40 to a negative $1.14, a significant decrease from the previously anticipated positive earnings. Looking ahead to fiscal 2025, the company has lowered its net sales projections to $1.150 billion to $1.250 billion and the income from operations range to 6% to 8%, citing program delays and overhead absorption as the primary reasons for the adjustment.
Bearish Highlights
The company's second-quarter performance was marred by several challenges, including operational inefficiencies in North American auto operations, which led to inventory shortages and increased expenses. Additionally, goodwill impairment charges of over $56 million, primarily due to past acquisitions underperforming, had a significant impact on the company's financials. Methode also reported a negative free cash flow of $11.3 million for the quarter.
Bullish Highlights
Despite the setbacks, Methode is actively pursuing improvements in operational efficiency and is preparing for new program launches. The company's largest EV program, focusing on last-mile delivery vehicles, is expected to be a major growth area, particularly given the cost-effectiveness of these vehicles for companies like Amazon (NASDAQ:AMZN).
Misses
The company's adjusted non-GAAP diluted EPS decreased to $0.06 per share after accounting for various costs. EBITDA was negatively affected, registering at $36.7 million due to the goodwill impairment and other factors. Gross debt increased by $25.2 million, and net cash from operating activities was an outflow of $0.6 million.
QA Highlights
During the earnings call, Don Duda clarified that the recent write-down in the company's value was a result of market value falling below book value, necessitating a reassessment of projections. He emphasized that this impairment, stemming from past acquisitions, does not impact the company's future business investments. The last mile business was highlighted as comprising approximately 80% of the company's operations. The earnings call concluded with a positive note on the company's focus areas and holiday greetings.
InvestingPro Insights
Methode Electronics' recent financial performance reflects a complex landscape, with several factors influencing the company's valuation and expectations. According to InvestingPro data, Methode Electronics has a market capitalization of $787.89 million and is currently trading at a price-to-earnings (P/E) ratio of -33.01, which indicates that the market has been pricing the company's earnings negatively. However, looking ahead, the adjusted P/E ratio for the last twelve months as of Q2 2024 stands at a more optimistic 29.01, hinting at market anticipation of a turnaround.
One of the InvestingPro Tips highlights that management has been aggressively buying back shares, which can be seen as a vote of confidence in the company's future prospects and a potentially positive signal to investors. Additionally, the company has maintained dividend payments for 42 consecutive years, showcasing a commitment to shareholder returns even amidst financial headwinds.
Investors should note that while the company's revenue has seen a slight decline of 1.66% in the last twelve months as of Q2 2024, Methode's liquid assets exceed its short-term obligations, which suggests a strong liquidity position. This is particularly relevant given the current operational challenges and market uncertainties.
For readers interested in a deeper analysis, there are 11 additional InvestingPro Tips available for Methode Electronics, which can be accessed with an InvestingPro subscription. Now is an excellent time to consider this, as InvestingPro is offering a special Cyber Monday sale with discounts of up to 60%. Plus, use coupon code sfy23 to receive an additional 10% off a 2-year InvestingPro+ subscription. These insights could be pivotal in making informed investment decisions, especially when navigating a company facing both headwinds and opportunities for growth.
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