Methode Electronics Inc. (MEI) 2025 Q1 Earnings Call Summary

Optimistic Highlights

• Affirmed Guidance for Fiscal 2025

Despite some headwinds, the company affirmed its guidance for flat sales in fiscal 2025, followed by profitable organic sales growth in fiscal 2026.

• Strong EV Activity

EV sales increased to 18% of consolidated total, with expectations to exceed 20% for fiscal 2025.

• Solid Program Awards

Over $80 million in annual program awards, with key wins in EV, defense, and data centers.

• Improved Cash Flow

Generated over $16 million in cash from operations and reduced working capital by $9 million.

• New Leadership

Appointment of Laura Kowalchik as CFO and John Erwin as CPO to drive improvements.

Pessimistic Highlights

• Pre-Tax Loss

Reported an adjusted pre-tax loss of $9 million for the quarter, driven by lower sales volume and elevated costs from ongoing program launches.

• Market Headwinds

Facing challenges in key markets including automotive, commercial vehicles, construction, and agriculture.

• Inventory Issues

Significant increase in inventory due to delays in program launches, impacting cash flow and operational efficiency.

• Legal Fees

Incurred discrete legal fees related to Hetronic litigation, impacting financial performance.

• Customer Program Delays

Delays in customer programs contributed to absorption challenges and impacted financial results.

Company Outlook

• Transformational Year

Fiscal 2025 is expected to be a year of transformation, focusing on operational improvements and cost efficiency.

• Program Launches

Over 30 program launches planned for fiscal 2025 and another 20 for fiscal 2026, testing the company's capabilities.

• Long-Term Value Creation

Emphasis on resetting performance, building capabilities, and shifting culture to position the company for long-term value creation.

• Market Conditions

Keenly monitoring market conditions, especially in the EV market, to adjust strategies as needed.

• Leadership Focus

Building a strong executive team to support the company's transformation and future growth.

Q & A Highlights

• Q: Gross Margin Improvement in Automotive

Luke Junk, Baird

A: Operational improvements, price increases, and cost reductions contributed to better gross margins. These improvements are expected to continue. Jon DeGaynor

• Q: Impact of Appliance Roll-Off on Interface Business

Luke Junk, Baird

A: The roll-off will impact sales, but new appliance programs and synergies with other segments are expected to offset this. Jon DeGaynor

• Q: Initial Focus Areas for New CEO

Luke Junk, Baird

A: Prioritizing program launches, customer support, integrated financial improvement, and building the leadership team. Jon DeGaynor

• Q: Market Conditions and Guidance

John Franzreb, Sidoti & Company

A: No significant changes in market conditions; maintaining guidance to ensure credibility. David Rawden and Jon DeGaynor

• Q: Price Increases Impact on Gross Margin

John Franzreb, Sidoti & Company

A: Price increases have positively impacted gross margins, with ongoing efforts to optimize pricing. Jon DeGaynor

• Q: Supply Chain Cost Opportunities

John Franzreb, Sidoti & Company

A: Focus on total supply chain cost optimization, including procurement, shipping, and inventory management. Jon DeGaynor

• Q: Inventory Increase Explanation

Gary Prestopino, Barrington Research

A: Inventory increase due to delays in program launches, with efforts to optimize inventory levels. Jon DeGaynor

• Q: Stellantis Program Launches

Gary Prestopino, Barrington Research

A: Programs are for EVs, with global launches expected to drive sales growth. Jon DeGaynor

• Q: Areas of Improvement in Plants

Gary Prestopino, Barrington Research

A: Focus on productivity, scrap reduction, and operational improvements, particularly in Mexican facilities. Jon DeGaynor

• Q: Tax Expense Guidance

John Franzreb, Sidoti & Company

A: Tax expense guidance is based on GAAP estimates, with adjustments expected throughout the year. David Rawden

• Q: Contribution Margin of New EV Programs

John Franzreb, Sidoti & Company

A: New EV programs are expected to be at least on par, if not accretive, from a gross margin perspective. Jon DeGaynor