- Sequential Financial Growth Net sales rose 3% to $247M, adjusted EBITDA up 12% to $18M.
- Reaffirmed Guidance Full-year sales: $900M–$1B; adjusted EBITDA: $70M–$80M; net debt down $29.6M YoY.
- Operational Efficiency EBITDA midpoint improvement of $32M YoY despite $100M sales decline via cost reductions (1,000 workforce cuts in Mexico/Egypt).
- Free Cash Flow Turnaround Full-year positive FCF anticipated vs. $15M outflow last year; Egypt gross margins nearly doubled.
- EV Sales Composition EV/hybrid sales: $217M in H1 (41% of total); North America EV sales at $11.5M, impacted by regional headwinds.
Operational Highlights
The company's improvement efforts are on track, with significant progress in its Egypt and Mexico facilities, where gross margins in Egypt have nearly doubled. The company expects the second half of fiscal 2026 to be stronger than the first half, driven by sequential improvements in its largest facilities and cost reductions. Free cash flow is expected to be positive for the full year, compared to an outflow of $15 million in the previous fiscal year.
Guidance and Outlook
Methode reaffirmed its full-year sales guidance of $900 million to $1 billion and adjusted EBITDA of $70 million to $80 million. The company expects to see year-over-year improvement in EBITDA, adding $32 million at midpoint guidance, despite $100 million less in sales. This improvement comes from getting cost out of the plants, including 1,000 people removed from the two big facilities in Mexico and Egypt.
Valuation Metrics
With a P/E Ratio of -3.95, P/B Ratio of 0.37, and EV/EBITDA of 33.36, the market is pricing in significant challenges for the company. The negative ROE of -9.1% and ROIC of -5.37% also indicate that the company is struggling to generate returns. However, the Dividend Yield of 5.72% and Free Cash Flow Yield of 34.36% could be attractive for income investors.
Segment Performance
The company's sales to EV and hybrid applications were $217 million in the first half, with EVs making up 41% of that. In North America, EV sales were $11.5 million. The company expects commercial vehicle volumes to come back in 2027, which will help drive revenue. Analysts estimate next year's revenue growth at -6.9%, indicating a challenging environment.
Cash Flow and Taxation
The company experienced a cash outflow in receivables in the quarter, $14 million, due to sales increase in the quarter compared to last quarter. The company expects cash taxes to be lower, with a tax expense range of $17 million to $21 million, including a $10 million to $15 million valuation allowance on deferred tax assets.