MEI Q3 Deep Dive: Transformation Progress Amid Market Headwinds and Operational Changes

Custom-engineered solutions manufacturer Methode Electronics (NYSE:MEI) reported Q3 CY2025 results exceeding the market’s revenue expectations, but sales fell by 15.6% year on year to $246.9 million. The company expects the full year’s revenue to be around $950 million, close to analysts’ estimates. Its non-GAAP loss of $0.19 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Methode Electronics' third quarter was marked by continued operational challenges, with revenue declining notably year over year. Management attributed the sales contraction to ongoing headwinds in automotive and delayed program launches, particularly in the electric vehicle segment. CEO Jonathan DeGaynor highlighted that, “our EV exposure is not just in North America, it's in Europe and Asia,” and stressed the company has already absorbed much of the impact from canceled and delayed launches. The company’s efforts to improve plant performance, especially in Egypt and Mexico, helped deliver sequential improvements, but overall margin pressures persisted.

Looking ahead, Methode Electronics is maintaining its full-year guidance, with management emphasizing a focus on cost discipline, improved plant execution, and selective investment in growth areas such as data centers. The leadership team is cautious about external volatility, including tariffs and supply chain disruptions, which continue to create uncertainty in forecasting. CFO Laura Kowalchik outlined that, “we expect our second half results to be higher than the first half,” driven by operational improvements and a more stable manufacturing footprint. Management remains focused on completing its transformation, aiming for a more reliable and resilient business model even as key end markets remain turbulent.

Key Insights from Management’s Remarks

Management identified delayed automotive program launches and plant improvement initiatives as key themes, with sequential progress in operational metrics despite ongoing challenges in core end markets.

• Plant transformation progress: Significant management attention was devoted to improving facilities in Egypt and Mexico, resulting in better product quality, cost controls, and delivery performance. CEO DeGaynor stated Egypt is ahead in its transformation, while Mexico continues to make progress on cost reduction and operational stability.
• Leadership restructuring completed: Methode completed a top-to-bottom revamp of its leadership team, moving from a regional to a global, cross-functional structure. The company believes this new structure will drive better execution and faster problem-solving across its facilities.
• Data center momentum builds: Management noted that Power Solutions for data centers remain a long-term growth driver, with recent moves toward vendor-managed inventory expected to enhance customer relationships and sales predictability. The company invested $10 million in inventory to support this initiative, indicating confidence in future demand.
• Automotive and EV headwinds absorbed: The bulk of the negative impact from delayed or canceled electric vehicle launches, especially in North America, has already been reflected in results and guidance. Management believes the company is now positioned to benefit from any future recovery in these segments.
• Operational efficiencies drive margin opportunity: Sequential margin improvements were attributed to cost-cutting and waste reduction, particularly in the Mexico and Egypt plants. Management emphasized that further gains will depend on successful program launches and continued plant performance improvements.

Drivers of Future Performance

Methode’s outlook centers on plant execution, selective growth investments, and managing volatility in its core end markets.

• Operational improvements in key plants: Management expects continued margin recovery as operational upgrades in Egypt and Mexico gain traction, reducing cost of poor quality and reliance on premium freight. CFO Kowalchik pointed to “gross margins nearly doubled” in Egypt due to these initiatives.
• Data center strategy as a growth lever: The company is betting on its data center Power Solutions to offset weakness in automotive and industrial segments. CEO DeGaynor described the vendor-managed inventory investment as a strategic move to “take share and get a lot more clarity with regard to the sales forecast.”
• External risks and market turbulence: Persistent uncertainty from tariffs, supply chain issues, and customer program delays continue to limit the company’s ability to narrow guidance. Management reiterated that guidance remains broad due to these factors, and any improvement in end markets, especially commercial vehicles and industrial, could be a tailwind.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be closely monitoring (1) the ongoing operational improvements in Egypt and Mexico for sustainable margin expansion, (2) the success of data center Power Solutions and the vendor-managed inventory rollout as a potential growth offset to weaker automotive, and (3) any resolution or escalation of external risks such as tariffs or supply chain disruptions. We will also track the pace and profitability of new program launches across core segments.

Methode Electronics currently trades at $7.73, down from $8.69 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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