MEI Q2 Deep Dive: Cost Discipline, Data Center Power, and EV Program Headwinds

Custom-engineered solutions manufacturer Methode Electronics (NYSE:MEI) reported Q2 CY2025 results topping the market’s revenue expectations, but sales fell by 7% year on year to $240.5 million. The company’s full-year revenue guidance of $950 million at the midpoint came in 2.6% above analysts’ estimates. Its non-GAAP loss of $0.22 per share was 12% above analysts’ consensus estimates.

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StockStory’s Take

Methode Electronics’ second quarter results prompted a significant positive reaction from the market, as revenue and adjusted EBITDA both surpassed Wall Street’s expectations despite ongoing year-over-year sales declines. Management attributed the results to operational improvements, cost reductions, and ongoing strength in Data Center Power Product sales, which helped offset continued weakness in North American automotive programs. CEO Jonathan DeGaynor emphasized, “Our income from operations was up $9 million from the prior year. This was the result of reduction in SG&A costs and operational improvements that we have been sharing with you.”

Looking ahead, Methode Electronics’ management is reaffirming full-year revenue and EBITDA guidance, supported by anticipated contributions from over 30 new program launches and continued strength in Power Solutions. The company believes improved operational efficiency and the ramp-up of new projects will drive margin expansion even as sales remain pressured by North American EV market softness. CFO Laura Kowalchik noted, “Our cost reduction efforts clearly bore fruit this quarter and set Methode up for improved margins when we return to sales growth.”

Key Insights from Management’s Remarks

Management credited the quarter’s performance to improved execution in Power Solutions, ongoing cost reductions, and progress in global operations, even as automotive segment challenges persisted.

• Data Center Power Momentum: Methode achieved strong year-over-year growth in its Data Center Power Product sales, with CEO DeGaynor highlighting a 12% increase as operators seek higher power density for new installations. The company’s legacy in power distribution is being leveraged in both current and next-generation data center projects.
• Cost Structure Improvements: Significant reductions in selling, general, and administrative (SG&A) expenses were a key driver of improved operating income and EBITDA. Kowalchik attributed a $9.6 million decrease in SG&A to lower professional fees and compensation, supporting profitability despite sales declines.
• Automotive Segment Weakness: The North American automotive business continued to be challenged by the transition from legacy programs and delayed EV launches, particularly with Stellantis. DeGaynor acknowledged that performance in EMEA improved while Asia remained stable, but North America faced revenue headwinds and execution issues.
• Free Cash Flow and Debt Reduction: Methode posted its third consecutive quarter of positive free cash flow, totaling $18 million, and continued to reduce net debt, now down by $41 million over three quarters. Kowalchik emphasized that lower working capital and capital expenditures supported this improvement.
• Transformation Progress: Management continued to focus on its transformation journey, citing better global collaboration, improved working capital, and enhanced supply chain execution. The company is seeing increased requests for quotations (RFQs) and proposals (RFPs), signaling potential for future customer and market diversification.

Drivers of Future Performance

Methode expects margin recovery and future growth to be driven by new program launches, efficiency gains, and expanding opportunities in Power Solutions, while monitoring headwinds in automotive and commercial vehicle markets.

• New Program Launches: The company plans to launch over 30 new programs this year, with the majority scheduled for the second half. Management believes these launches, particularly in Power Solutions and automotive, will be critical in offsetting sales headwinds and supporting revenue stabilization.
• Operational Efficiency and Cost Control: Continued focus on reducing headcount, consolidating facilities, and driving supply chain efficiencies is expected to underpin future margin improvement. Management cited ongoing structural cost reduction initiatives as essential for supporting profitability as market conditions remain challenging.
• EV and Data Center Growth Potential: While near-term EV demand, especially in North America, remains soft, Methode sees long-term growth opportunities as the market rebounds. The company is also investing in next-generation power products, including high-voltage busbars for data centers, which are positioned to benefit from increasing power density requirements and global digital infrastructure buildouts.

Catalysts in Upcoming Quarters

In the coming quarters, StockStory analysts will focus on (1) the pace and success of over 30 planned new program launches, (2) ongoing improvements in operating efficiency and cost structure, and (3) signs of recovery in North American and global EV demand. Progress in capturing additional data center power opportunities and the company’s ability to maintain strong free cash flow will also be key indicators of successful execution.

Methode Electronics currently trades at $8.29, up from $7.49 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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