Methode Electronics' Q1 2026 Earnings Call: Contradictions Emerge on Restructuring, EV Sales Geography, and Automotive Growth

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 10, 2025

Financials Results

• Revenue: $240.5M, down 7% YOY; down 6% sequentially
• EPS: ($0.22) adjusted diluted EPS, improved by $0.09 YOY and by $0.55 sequentially

Guidance:

• FY26 net sales expected at $900M–$1.0B (52-week year; FY25 had 53 weeks).
• FY26 EBITDA outlook $70–$80M; second half higher than first.
• EBITDA margin to rise from ~4.1% to ~7.9%.
• FY26 free cash flow positive (vs -$15M in FY25).
• Planning assumptions: D&A $58–$63M, CapEx $24–$29M, interest $21–$23M, tax $17–$21M (incl. $10–$15M valuation allowance excluded from adjusted).
• Data Center sales in FY26 similar to FY25 with upside potential.
• EV demand softer near term in North America; expecting rebound in FY27.

Business Commentary:

• Transformative Growth and Operational Improvements:
• Methode Electronics reported an increase of $9 million in income from operations from the prior year and a $16 million increase in adjusted EBITDA, up $6 million year-over-year.

• This growth was driven by strategic reductions in SG&A costs and operational improvements.

• Automotive Segment Challenges and Opportunities:

• Automotive sales were down slightly year-over-year, primarily due to the transition from legacy programs to new ones, with notable headwinds in North America, particularly Mexico.

• Methode anticipates volume stabilization and growth in fiscal '27 due to anticipated EV demand recovery and new program launches.

• Data Center Sales Growth:

• Sales in the Data Center segment grew by 12% year-over-year, despite a sequential decline from record sales in Q4 2025.

• The growth was driven by strong demand and existing product technologies, with potential for future expansion due to power density increases sought by data center operators.

• Power Solutions Enterprise Success:

• Methode's power solutions sales have seen a compound annual growth rate of 30% over the last three years.

• This success is attributed to the company's expertise in EV, data center, and military applications, leveraging its global footprint and customer-centric innovation.

• Financial Stability and Debt Reduction:

• Methode delivered strong free cash flow for the third consecutive quarter, reducing net debt by $41 million over the last three quarters.
• The Management team's focus on income statement and balance sheet management is a key factor in these positive financial results.

Sentiment Analysis:

• Management affirmed FY26 guidance and expects to double EBITDA despite ~$100M lower sales. Third straight quarter of strong free cash flow and net debt reduction. Data Center sales grew 12% YOY and FY26 sales expected similar to FY25 with upside. Operating improvements and SG&A reductions drove higher operating income and EBITDA even with lower sales.

Q&A:

• Question from Luke Junk (Baird): How will Automotive contribute to doubling EBITDA this year, and what is the multi-year outlook for that segment?
  Response: EMEA improved and Asia is stable; North America faces roll-offs and delayed EV programs (notably Stellantis), but EV volumes should rebound in FY27 and Data Center work in Mexico will help utilization.

• Question from Luke Junk (Baird): Strategically, how are you approaching Asia given EV opportunities?
  Response: Asia leads EV product development and initial manufacturing/validation, operates efficiently, and enhances customer credibility across EV and Data Center, supporting global growth.

• Question from Luke Junk (Baird): Are appliance/user-interface roll-offs showing in Q1, and are there offsets from transceivers?
  Response: Yes, roll-offs are tracking the prior bridge; offsets include new program ramps and Data Center backfill.

• Question from John Franzreb (Sidoti): Any change to tariff outlook?
  Response: No material change; about $1M timing impact in the quarter, costs largely passed through, and USMCA-compliant footprint is creating new RFQ opportunities.

• Question from John Franzreb (Sidoti): Where are you in restructuring and what to expect in FY26?
  Response: HQ consolidation completes by mid-year; ongoing structural cost actions and ~500 headcount reduction underpin EBITDA improvement; no new material actions disclosed.

• Question from John Franzreb (Sidoti): Outlook for truck, ag, and construction end markets?
  Response: Commercial vehicle down ~5% now with a rebound expected in ’26; near-term softness persists, but improved execution is driving more RFQs and power-related interest.

• Question from Gary Prestopino (Barrington): Has the FY26 sales bridge changed (e.g., Stellantis -$40M; +$48M new launches)?
  Response: No changes; model using the prior bridge.

• Question from Gary Prestopino (Barrington): Are data center busbars primarily new construction, and is advanced tech in guidance?
  Response: Mostly new construction using current tech; advanced high-voltage initiatives are not included in guidance.

• Question from Gary Prestopino (Barrington): Can Data Center become a larger part of the mix or is growth range-bound?
  Response: Not range-bound; share gains on current products plus future high-voltage solutions and adjacent markets support further growth from a small base.

• Question from Gary Prestopino (Barrington): What portion of EV sales is outside the U.S., and where will FY26 growth come from?
  Response: FY25 EV revenue was ~$220M: 55% EMEA, 16% Asia, 30% North America; FY26 EV growth will be primarily outside the U.S. due to Stellantis-related headwinds.