Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Methode Electronics Inc. Fell More Than 30% Today

By Timothy Green - Jun 25, 2015 at 10:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A disappointing quarter and abysmal guidance sent investors fleeing from the stock.

What: Shares of Methode Electronics (MEI -0.89%) collapsed on Thursday after the company reported its fiscal-fourth-quarter earnings, coming up short of analyst estimates for revenue and guiding for a revenue decline in fiscal 2016. At 10:45 Thursday morning, the stock was down about 32%.

So what: Methode reported fourth-quarter revenue of $227.3 million, up 1.1% year-over-year and slightly short of analyst expectations. For the full year, Methode reported revenue of $881.1 million, up 14% compared to the previous fiscal year.

Methode reported EPS of $0.68 during the fourth quarter, in line with analyst estimates but well below the EPS of $1.25 the company reported during the same period last year. Multiple factors drove the decline in EPS, including a lower income tax benefit, higher goodwill impairment and intangible asset charges, higher compensation expense, and pricing concessions in the Automotive segment. For the full year, EPS rose slightly, up about 2.4% to $2.57.

While Methode's fourth-quarter results weren't great, the real bad news was the company's guidance. Methode expects revenue between $830 million and $865 million for fiscal 2016, the first revenue decline since fiscal 2010. EPS is expected to be in the range of $2.07 and $2.22, down significantly year-over-year.

Now what: While the guidance for fiscal 2016 is disappointing, CEO Donald Duda still expects to grow EBITDA at a compound annual rate of 9%-10% over the next five years, suggesting that the company believes that fiscal 2016 will be more of a speed bump than a roadblock.

Fiscal 2016 will mark the end of a tremendous few years of earnings growth for the company; since fiscal 2012, when EPS was just $0.22, earnings have grown by a factor of 11. The stock has also surged during this time, with a large chunk of that growth being wiped out today. The 32% drop in the stock price may seem extreme, but it appears justified based on the company's new guidance.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Methode Electronics, Inc. Stock Quote
Methode Electronics, Inc.
MEI
$36.71 (-0.89%) $0.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.