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Methode Electronics (MEI) Q2 Earnings & Sales Miss Estimates
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Methode Electronics (MEI - Free Report) delivered second-quarter fiscal 2020 adjusted earnings of 64 cents per share, which lagged the Zacks Consensus Estimate by 20.3% and declined 24.7% year over year.
Net sales declined 2.6% year over year to $257.2 million. The figure lagged the Zacks Consensus Estimate of $292.5 million.
Sales were dampened by $32 million due to the United Auto Workers (UAW) labor strike at General Motors and currency rate fluctuations, which hurt sales by $3.9 million.
This was slightly offset by increased net sales from Grakon, which was $51.8 million in the reported quarter.
Automotive segment sales declined 10.7% on a year-over-year basis.
Sales in Asia were down 8% due to decline in sensor product sales and lower transmission lead-frame assembly volumes. This was partially negated by an increase in touchscreen sales to an Asian auto OEM.
North America sales declined 16.5% due to UAW labor strike at General Motors, slightly offset by higher automotive sales from Grakon of $12.2 million.
However, Europe sales were up 2.7% due to higher sensor product sales volume, partially negated by lower switch product sales.
Industrial segment jumped 36.9% year over year, driven by higher Grakon sales of $20.1 million. This was partially negated by lower sales volume of radio remote control and busbar products.
Net sales in the Interface segment declined 19% due to lower appliance product sales.
Medical net sales remained flat year over year at $0.3 million.
Operating Details
Gross margin on a non-GAAP basis contracted 150 basis points (bps) year over year to 26.8%. The downside can primarily be attributed to the impact of the UAW labor strike and lower sales of radio remote control, busbar and appliance products.
Industrial segment gross margin expanded 780 bps. However, automotive segment gross margin contracted 270 bps due to the impact of the UAW strike and unfavorable product mix. Lower sales of appliance products negatively impacted Interface segment gross margin.
Adjusted EBITDA margin contracted 180 bps on a year-over-year basis to 17.1%.
Operating expenses on a GAAP basis contracted 480 bps to 14.7% of revenues. Selling, general and administrative (SG&A) expenses fell 530 bps to 12.9% of revenues. Decline in SG&A expenses can be primarily attributed to lower acquisition related costs and lower stock based and employee compensation expenses.
Non-GAAP operating margin contracted 300 bps to 12.1%.
Balance Sheet & Free Cash Flow
As of Oct 26, 2019, cash and cash equivalents were $95.6 million compared with $83.2 million in trhe previous quarter.
Moreover, free cash flow was $22.1 million.
Guidance
For fiscal 2020, Methode Electronics expects sales between $1.13 billion and $1.17 billion.
EBITDA is projected at $221 million compared with $155 million in fiscal 2019. New automotive and laundry program launches and increased earnings from the sale of Grakon are expected to boost EBITDA growth.
Pre-tax income is expected in the range of $150.3-$164.3 million.
Earnings are expected in the range of $3.25-$3.55 per share.
Moreover, capital expenditure is expected between $48 million and $54 million. Free cash flow is anticipated between $122 million and $136 million.
Zacks Rank & Stocks to Consider
Methode Electronics currently carries a Zacks Rank #4 (Sell).
Long-term earnings growth rate for Baidu, Marchex and CommVault is currently pegged at 2.3%, 15% and 10%, respectively.
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Methode Electronics (MEI) Q2 Earnings & Sales Miss Estimates
Methode Electronics (MEI - Free Report) delivered second-quarter fiscal 2020 adjusted earnings of 64 cents per share, which lagged the Zacks Consensus Estimate by 20.3% and declined 24.7% year over year.
Net sales declined 2.6% year over year to $257.2 million. The figure lagged the Zacks Consensus Estimate of $292.5 million.
Sales were dampened by $32 million due to the United Auto Workers (UAW) labor strike at General Motors and currency rate fluctuations, which hurt sales by $3.9 million.
This was slightly offset by increased net sales from Grakon, which was $51.8 million in the reported quarter.
Methode Electronics, Inc. Price and Consensus
Methode Electronics, Inc. price-consensus-chart | Methode Electronics, Inc. Quote
Top-Line Details
Automotive segment sales declined 10.7% on a year-over-year basis.
Sales in Asia were down 8% due to decline in sensor product sales and lower transmission lead-frame assembly volumes. This was partially negated by an increase in touchscreen sales to an Asian auto OEM.
North America sales declined 16.5% due to UAW labor strike at General Motors, slightly offset by higher automotive sales from Grakon of $12.2 million.
However, Europe sales were up 2.7% due to higher sensor product sales volume, partially negated by lower switch product sales.
Industrial segment jumped 36.9% year over year, driven by higher Grakon sales of $20.1 million. This was partially negated by lower sales volume of radio remote control and busbar products.
Net sales in the Interface segment declined 19% due to lower appliance product sales.
Medical net sales remained flat year over year at $0.3 million.
Operating Details
Gross margin on a non-GAAP basis contracted 150 basis points (bps) year over year to 26.8%. The downside can primarily be attributed to the impact of the UAW labor strike and lower sales of radio remote control, busbar and appliance products.
Industrial segment gross margin expanded 780 bps. However, automotive segment gross margin contracted 270 bps due to the impact of the UAW strike and unfavorable product mix. Lower sales of appliance products negatively impacted Interface segment gross margin.
Adjusted EBITDA margin contracted 180 bps on a year-over-year basis to 17.1%.
Operating expenses on a GAAP basis contracted 480 bps to 14.7% of revenues. Selling, general and administrative (SG&A) expenses fell 530 bps to 12.9% of revenues. Decline in SG&A expenses can be primarily attributed to lower acquisition related costs and lower stock based and employee compensation expenses.
Non-GAAP operating margin contracted 300 bps to 12.1%.
Balance Sheet & Free Cash Flow
As of Oct 26, 2019, cash and cash equivalents were $95.6 million compared with $83.2 million in trhe previous quarter.
Moreover, free cash flow was $22.1 million.
Guidance
For fiscal 2020, Methode Electronics expects sales between $1.13 billion and $1.17 billion.
EBITDA is projected at $221 million compared with $155 million in fiscal 2019. New automotive and laundry program launches and increased earnings from the sale of Grakon are expected to boost EBITDA growth.
Pre-tax income is expected in the range of $150.3-$164.3 million.
Earnings are expected in the range of $3.25-$3.55 per share.
Moreover, capital expenditure is expected between $48 million and $54 million. Free cash flow is anticipated between $122 million and $136 million.
Zacks Rank & Stocks to Consider
Methode Electronics currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader technology sector include Baidu, Inc. (BIDU - Free Report) , Marchex, Inc. (MCHX - Free Report) and CommVault Systems, Inc. (CVLT - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Baidu, Marchex and CommVault is currently pegged at 2.3%, 15% and 10%, respectively.
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Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.6% per year.
These 7 were selected because of their superior potential for immediate breakout.
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