Why Methode Electronics Inc. Shares Dropped Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Methode Electronics (NYSE: MEI  ) tumbled nearly 12% Thursday after the company's fiscal third-quarter 2014 earnings fell short of Wall Street's expectations.

So what: Quarterly sales rose 54.3% year over year to $189.8 million, which translated to net income of $14.6 million, or $0.38 per share. Analysts, on average, were looking for higher earnings of $0.40 per share on lower sales of $177.04 million.

Methode also reiterated its full-year fiscal 2014 guidance, which calls for revenue in the range of $720 million to $750 million, and earnings per share of $1.70 to $1.90. The midpoint of both ranges falls slightly below analysts' expectations for fiscal 2014 earnings, and sales of $1.82 per share and $738.05 million, respectively.

That may not seem like much, but keep in mind Methode also stated its fourth-quarter results will include $7.2 million in proceeds and an $0.08 per share pre-tax gain from the Feb. 10 sale of its interest in biometic sensing company Lumidigm.

Now what: To their credit, Methode's board did attempt to take some of the sting away by raising their quarterly dividend 29% from $0.07 to $0.09 per share.

However, in explaining their reduced profitability, CEO Donald Duda blamed the performance of Methode's Interconnect and Power Product segments, which suffered from "lower sequential sales, unfavorable sales mix and increased development expenses." Further, Duda says, they "expect similar results for these segments in the fourth quarter."

In the end, that's why I think investors would be wise to let the dust settle and avoid diving in after today's pullback. Until Methode can show its troublesome segments' underperformance is only temporary, I'm perfectly content watching from the sidelines.

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