Methode Electronics’ profits sag

Business, Winter 2016

March 3, 2016

By Lucia Maffei

Methode Electronics Inc.’s third quarter earnings didn’t drop quite as far as Wall Street had expected, but the manufacturing company’s shares slipped Thursday after management scaled down sales expectations for full-year 2016.

For the fiscal quarter ended Jan. 30, the Chicago-based electronic components manufacturer’s net income was $17.2 million, or 45 cents per diluted share, down 36.5 percent from $27.1 million, or 68 cents per share, a year earlier.

Methode’s per-share results topped by two pennies the 43 cents a share analysts surveyed by Yahoo Finance had been expecting.

Earnings Per Share (in Cents)

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Methode Electronics’ earnings per diluted share have been fluctuating over the last two years. (Lucia Maffei/MEDILL)

While earnings were a bit stronger than expected, sales were a disappointment. Methode’s net sales fell by 10.4 percent to $184.6 million from $206 million a year ago. Analyst surveyed by Yahoo Finance had expected revenue of $190.31 million.

The maker of electronic components and sensors manufacturer said it faced decline in sales across all four segments: automotive, interface, power products and other components.

Specifically, Methode said profit margins were under pressure because of softer sales in its power products segment, which makes bus bars, power cabling and power connectors.

Pricing concessions in the automotive sector – Methode is a supplier to auto makers such as Ford and General Motors –also played a role in the profit decline, but the impact of those price cuts was partially offset by a favorable currency impact on raw materials, as well as commodity pricing and labor cost.

“Sales were lower than previously expected due to prolonged weakness in our non-automotive businesses, particularly for our products that serve the industrial, telecom and energy market,” explained President and CEO Donald W. Duda in a statement. “We expect this will continue into the fourth quarter.”

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Corporate headquarters are in Chicago. (Lucia Maffei/MEDILL)

On Thursday, the company also revised its sales guidance downward to the range of $790 million to $800 million. Last June, Methode had set its 2016 guidance of sales in the range of $830 million to $865 million, and reiterated it in September.

Analysts surveyed by Yahoo Finance had been expecting sales of $814.3 million for the current year.

“Despite our reduced expectations, we remain confident that our operating income and earnings per share will approximate the midpoint of our guidance ranges,” said Duda in the press release.

The company’s net income for the nine months was $62 million, or $1.60 per diluted share, a 16.8 percent decrease from $74.5 million, or $1.90 per share, in the 2015 nine months ended Jan. 31. In the same period, revenue also declined 8.8 percent, from $653.8 million to $596.3 million.

In New York Stock Exchange trading late Thursday, Methode Electronics shares were trading down 70 cents, or 2.5 percent, at $27.82.

Photo at top: Methode Electronics produces components for autos, computers, networks, telecommunication systems and aerospace vehicles. (Bjorn Watland/Flickr)