Methode Electronics (MEI) Q4 Earnings call transcript Jul 11, 2024
2min read Methode Electronics held its earnings call for the fiscal year 2024 fourth quarter, revealing a mixed bag of results that highlight both challenges and opportunities for the company. The call, led by Interim CEO Kevin Nystrom and CFO Ronald Tsoumas, provided insights into the company's financial performance and strategic direction.
Financial Performance and Challenges
The fourth quarter saw sales decline by $24 million year-over-year, primarily due to program roll-offs and softness in the e-bike and electric vehicle (EV) markets. The decline was partially offset by the acquisition of Nordic Lights in the Industrial segment. Operational inefficiencies in the North American auto operations, driven by increased program launches, labor turnover, and higher overall costs, contributed to a net loss in the quarter.
Despite these challenges, the company reported a strong quarter for free cash flow and new program awards, with over $140 million in annual program awards across power, lighting, sensor, and user interface applications. The pipeline of potential awards remains healthy, with a focus on EV and subject to reduction or delay due to customer decisions or market conditions.
Strategic Initiatives and Future Outlook
Methode Electronics is focused on improving profitability and reducing costs, particularly in sourcing, logistics, and sales and administrative costs. The company is also managing its strong backlog of program launches and improving low-margin programs. Looking ahead, the company expects fiscal 2025 to be a year of repositioning the business, with a goal of returning to growth and profitability in 2026.
EV Market and Strategic Positioning
The EV market remains a significant opportunity for Methode Electronics, with sales representing 14% of the consolidated total for the year. The company is transitioning from a sizable EV lighting program roll-off to a wave of new EV power programs, with a focus on maximizing cost efficiencies and managing program delays. Despite challenges in the near term, the company remains optimistic about the long-term potential of the EV market.
Market Outlook and Financial Guidance
For fiscal 2025, Methode Electronics expects net sales to be similar to fiscal 2024, with adjusted pretax income approaching breakeven. The second half of the year is expected to be significantly stronger than the first half, with the first quarter being similarly negative to the fourth quarter of fiscal 2024. The company also expects net sales to be greater than fiscal 2025 and pretax income to be positive and notably greater than fiscal 2025 in fiscal 2026.
Conclusion
The Methode Electronics earnings call provided a comprehensive overview of the company's financial performance and strategic direction, highlighting both challenges and opportunities. The company's focus on improving profitability, managing program launches, and leveraging the EV market is a clear indication of its strategic vision for the future. As the company transitions into a new fiscal year, investors and stakeholders will be closely watching its progress towards growth and profitability.