Methode Electronics(MEI +1.53%) reported fiscal 3Q2025 results on March 5, 2025, with sales of $239.9 million (down 8% year-over-year), an adjusted pretax loss of $7.3 million, and a return to $19.6 million in free cash flow (non-GAAP) despite significant auto program roll-offs. Management reaffirmed expectations of profitable organic sales growth in fiscal 2026, outlined improvements in operational execution, and described strategic shifts toward data centers and industrial markets. For reference, the company's fiscal year ends on April 30, 2025.
Operational overhaul lowers breakeven for Methode Electronics
Adjusted operating loss improved by $1.6 million year-over-year despite a $19.6 million decline in sales, highlighting material cost reductions and productivity gains. Gross profit increased by $4 million year-over-year due to lower scrap and freight, while free cash flow (non-GAAP) reached $19.6 million amid persistent auto sector weakness and program roll-offs.
"Taking a step back, these results clearly demonstrate that the actions we have taken to improve operational execution have lowered the breakeven sales point for the company. This is a key achievement that will enable Methode to drive margin leverage on future sales growth. Improved execution also helped us return to positive free cash flow, which was $20 million in the quarter. The fact that we generated the same amount of cash from operating activities as the prior year despite $20 million less in sales is a clear indication of an organization whose operating efficiency has improved."
-- Jonathan DeGaynor, President and Chief Executive Officer
This operational transformation enables the company to convert incremental sales into profit more efficiently, increasing future margin potential as new programs scale.
Methode Electronics pivots to data center and industrial growth
Data center product sales represented 7% of total sales, up from a historical range of 3%–5%, and are forecast to reach 9% for the full year. Management appointed a new Chief Strategy Officer to accelerate expansion outside core automotive, specifically calling out power solutions and industrial lighting as near-term growth focuses.
"As we build our strategy, we'll focus on megatrends, applying our core competencies in unique ways to develop high-value solutions for both current and adjacent markets. We don't plan to solely be shaped by market forces and swings of our current product portfolio. Our initial focus will be to explore opportunities in non-transportation power solutions, industrial lighting and industrial user interface areas. These are all areas where we can use our capabilities and drive organic growth in the near term."
-- Jonathan DeGaynor, President and Chief Executive Officer
This strategic shift positions the company to pursue growth opportunities in data center infrastructure and industrial lighting, diversifying revenue streams beyond automotive.
Slower EV launches moderate 2025, but fiscal 2026 growth reaffirmed
Sales from electric vehicle (EV) programs, especially launch volumes with Stellantis, lagged previous guidance for fiscal 2025 and fiscal 2026, prompting a reduction in sales expectations for fiscal 2025 below fiscal 2024 levels. Nonetheless, management reported no program cancellations, continued expansion with new EV launches for GM, and reaffirmed expectations of high single-digit organic growth in fiscal 2026 (excluding the sunsetting appliance business), even in flat end markets.
"The ramp-up of those programs as well as other launches has been slower than expected and impacted the quarter and our outlook, although pricing actions did provide some offset. Consequently, we now expect sales for our fiscal '25 to be lower than fiscal '24 rather than flat. Looking further out to fiscal '26, we still expect more launches of EV programs for Stellantis, albeit at lower volumes. In addition, we will be launching a sizable busbar program for GM. This GM program was a takeover award that we disclosed in the first quarter, but we did not identify the customer. This fast-track program demonstrates the trust that GM has in Methode. It also further adds to the diversity of the OEMs that we are supplying for EV programs. That activity is expected to more than offset the final headwind from the GM T1 roll-off as well as a major appliance program that is going end of life in fiscal '25. The overall net result is the continued expectation of organic sales growth in fiscal '26. On a more granular basis, excluding the appliance business, which is noncore to us, we could potentially see high single-digit organic growth in fiscal '26 with in an environment of flat end markets."
-- Jonathan DeGaynor, President and Chief Executive Officer
Despite short-term headwinds from delayed program ramps and weaker auto demand, the company maintains a credible pathway to resumed sales growth in fiscal 2026, supported by a diversified new program pipeline.
Looking Ahead
Management guides for fourth quarter sales of $240 million to $255 million and pretax income between negative $1 million and positive $3 million, with full-year fiscal 2025 sales guidance cut by $77 million at the midpoint. Fiscal 2026 is projected to deliver net sales above 2025 and "notably greater" positive pretax income in fiscal 2026. No explicit forecast is provided regarding stock buybacks or the impact of potential new U.S. tariffs, while operational discipline and program launches remain central to performance improvement.
