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

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

Timothy Green
Timothy Green
Jun 25, 2015 at 11:47AM
Technology and Telecom

What: Shares of Methode Electronics (NYSE:MEI) 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.