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Methode Electronics (MEI) Up on Q3 Earnings and Revenue Beat

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Zacks Equity Research
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Shares of Methode Electronics, Inc. MEI rallied more than 2% on Mar 5 after the company reported better-than-expected third-quarter fiscal 2020 results. The company’s third-quarter non-GAAP earnings of $1.05 surpassed the Zacks Consensus Estimate of 92 cents and increased 26.5% from the year-ago period.

This year-over-year growth mainly resulted from higher revenues, efficient cost management, and lower interest expenses, partially offset by increased taxes.

Quarter in Detail

Methode’s quarterly revenues grew 15.8% year on year to $285.9 million, beating the consensus mark by 1.7%. The company’s top line mainly benefited from higher sales in the Automotive segment.

Methode’s Automotive revenues grew 21.6% year over year mainly driven by higher sales volumes of integrated center stack and human-machine interface assembly products. Additionally, incremental sales of Grakon’s automotive lighting products contributed to the company’s overall sales growth.

Industrial segment’s revenues edged down 0.2% year over year, as the benefit of higher sales of busbar products was more than offset by lower sales of Grakon and radio remote control products. Negative impact of unfavorable foreign currency-exchange rates also hurts the division’s sales.

The Methode Interface segment's revenues increased 8.8%, chiefly on higher sales volumes of legacy data-solution products. The Medical division’s revenues also grew marginally on increased product acceptance.

Operating results

Methode’s non-GAAP gross margin expanded 10 basis points (bps) year over year to 27.8%. Increased sales at automotive segment and higher sensor products volumes primarily drove gross margin during the reported period. However, unfavorable currency-exchange rates and lower sales of radio remote control and appliance products partially offset the aforementioned benefits.
 

Methode Electronics, Inc. Price, Consensus and EPS Surprise

Methode Electronics, Inc. Price, Consensus and EPS Surprise
Methode Electronics, Inc. Price, Consensus and EPS Surprise

Methode Electronics, Inc. price-consensus-eps-surprise-chart | Methode Electronics, Inc. Quote

 

The company’s non-GAAP selling and administrative expenses as a percentage of revenues declined to 11.3% from 12.5% in the year-ago quarter. Reduction in expenses chiefly resulted from lower employment, partially offset by elevated performance-based compensation.

Non-GAAP EBITDA in the fourth quarter came in at $59.8 million compared with the year-ago quarter’s $49.5 million.

Balance Sheet and Cash Flows

Methode ended fiscal third-quarter with cash and cash equivalents of $79.9 million, down from the previous-quarter level of $95.6 million.

In the first nine months of fiscal 2020, the company generated $82.6 million of cash flow from operational activities. During this period, it paid $12.2 million in dividends.

Fiscal 2020 Outlook

Methode reiterated its fiscal 2020 sales guided range of $1.1 billion to $1.13 billion. The Zacks Consensus Estimate for fiscal 2020 revenues is pegged at $1.11 billion.

It also kept pre-tax income outlook of $150.3-$164.3 million unchanged. The company reaffirmed earnings per share guided range of $3.25-$3.55. The Zacks Consensus Estimate for fiscal 2020 earnings is pegged at $3.33 per share.

Zacks Rank & Key Picks

Methode currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the technology sector are NVIDIA Corporation NVDA, Atlassian Corporation Plc TEAM, and Akamai Technologies, Inc. AKAM, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term (3-5 years) expected EPS growth rate for NVIDIA, Atlassian, and Akamai is 12.7%, 22.3%, and 12%, respectively.

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