Methode Electronics (NYSE:MEI) reported fiscal third-quarter 2026 sales of $233.7 million and adjusted EBITDA of $7.3 million, as management pointed to mixed end-market demand and ongoing operational transformation efforts. On the call, executives emphasized continued cash generation and progress on portfolio and footprint actions, while acknowledging near-term pressure tied largely to North American automotive, including EV program delays and cancellations.
Quarterly results and segment drivers
President and CEO Jon DeGaynor said the company generated $234 million in sales and delivered positive free cash flow of $10 million in the quarter, with approximately $17 million of free cash flow year to date. DeGaynor highlighted industrial segment sales growth of 9.5% year over year, citing strength in off-road lighting and power distribution solutions that support data center applications.
Kowalchik noted the third quarter is historically the company’s weakest for sales because it spans year-end holidays. Gross profit decreased to $38.8 million from $41.3 million, driven primarily by lower volume and product mix in automotive and the interface segment.
Profitability and cash flow
Adjusted EBITDA declined $5 million year over year to $7.3 million. Kowalchik attributed the profitability decline primarily to lower gross profit and higher selling and administrative expenses. Selling and administrative expenses increased $1.4 million to $39.1 million, including $400,000 of restructuring and asset impairment charges.
The company posted an adjusted net loss of $13.1 million, compared with an adjusted net loss of $7.2 million in the fiscal third quarter of 2025. Adjusted loss per diluted share was $0.37 versus $0.21 a year ago. Income tax expense was $2.8 million, down from $6.2 million in the prior-year quarter; Kowalchik cited a lower valuation allowance for U.S. deferred tax assets compared with the year-ago period.
On the balance sheet and cash flow, Kowalchik said Methode ended the quarter with $133.7 million in cash, up $30.1 million compared with the end of fiscal 2025. Operating cash generation was $15.4 million and free cash flow was $10.1 million, down from $19.6 million in the prior-year quarter. Net debt declined $16.9 million from the same period last year.
Management reiterated capital allocation priorities including debt reduction, selective high-growth investments, business improvements, portfolio alignment, and dividends.
Transformation efforts and Mexico operational challenges
DeGaynor described Methode’s transformation as a multi-year effort focused on operational execution, portfolio refinement, and cost and footprint alignment, while acknowledging improvement “will not be linear.” He highlighted two facilities that were “extremely challenged” when the company began its transformation journey: Egypt and Mexico. DeGaynor said Egypt has shown positive trends from changes implemented there, while Mexico’s transformation “is not as far along.”
He said the company has “not seen the productivity improvements as quickly as we initially expected” in Mexico, a situation worsened by commercial vehicle volume reductions and program delays from multiple North American customers. DeGaynor said those external factors were the primary driver of the company’s revised adjusted EBITDA outlook.
In Q&A, DeGaynor told analysts Mexico is “probably about six months behind” Egypt. He added that Mexico is facing year-over-year revenue shrinkage, with program roll-offs and EV-related program delays concentrated there, meaning the company is spending to prepare and launch new programs without the benefit of higher revenue. He said Methode has rebuilt the Mexico leadership team over the last six months and is supplementing it with corporate and external specialist resources.
Kowalchik added that Mexico’s revenue decline is contributing to lower absorption, while SG&A has increased due to management changes, wages, and added resources. Despite this, she said the company is seeing improvements in scrap and direct material costs as a percentage of sales through supply chain initiatives.
Portfolio and footprint moves, including the dataMate divestiture
DeGaynor said Methode completed the sale of its dataMate business, describing it as a supplier of copper transceivers for enterprise and telecom networks that was not aligned with the company’s long-term power solutions strategy. He also noted progress on footprint reduction actions, including moving the company’s headquarters from Chicago and subleasing the prior facility, as well as signing a purchase agreement for the Harwood Heights facility in Illinois.
Management said proceeds from the dataMate sale and the planned Harwood Heights facility sale are expected to be used primarily to repay debt and strengthen the balance sheet.
During Q&A, DeGaynor said dataMate produced roughly $18 million of revenue and about $3 million of profitability. He said management believes the ability to pay down debt, exit an underutilized facility, and continue structural cost rationalization can “largely offset” the profitability, adding that the company views the divestiture as “an accretive decision.”
In a separate exchange, DeGaynor said the portfolio review is ongoing and that investors “can expect more to come in the future,” calling dataMate an “important first step.”
Data center power momentum and updated outlook
DeGaynor reiterated the company’s emphasis on power solutions across EV, industrial, and data center markets. On data centers specifically, he said that based on fourth-quarter order patterns the company now has “line of sight toward $120 million annualized run rate,” which he described as a significant increase year over year. He emphasized that the run rate reflects current end customers through various contract manufacturers and “does not assume incremental wins from new accounts.”
In Q&A, DeGaynor said the company’s move to vendor managed inventory (VMI) created a 6- to 8-week revenue gap as it shifted the point of sale recognition, contributing to a relatively flat year-over-year view for the full year. He said the $120 million run rate is supported by EDI-based forecasting, which management views as providing greater transparency and confidence. Management also said the company has not made material capital expenditures for the data center business.
Kowalchik provided context on companywide capital spending, stating fiscal 2025 capital expenditures were $42 million and fiscal 2026 year-to-date capex was about $16.5 million.
On guidance, Kowalchik said fiscal 2026 net sales guidance was narrowed, with the low end raised by $50 million to a range of $950 million to $1.0 billion. She attributed the change primarily to foreign exchange translation, totaling approximately $25 million through the first nine months of fiscal 2026, and an expected $30 million full-year benefit versus prior assumptions.
However, the company lowered its full-year adjusted EBITDA outlook to $58 million to $62 million from the prior $70 million to $80 million range. Kowalchik said the reduction is concentrated in North American auto and reflects updated cost assumptions tied to multiple customer program delays and higher expenses associated with the Mexico transformation, including wages and professional fees. She added that guidance does not reflect the sale of dataMate, the Harwood Heights facility transaction, or any customer recoveries.
In closing remarks, DeGaynor said the company is focused on stabilizing operations, refining the portfolio, aligning footprint and cost structure, and reallocating resources toward higher-growth power solutions opportunities, while maintaining emphasis on cash generation and balance sheet discipline.
About Methode Electronics (NYSE:MEI)
Methode Electronics, Inc is a Chicago-based global manufacturer of custom-engineered electronic and electromechanical components and assemblies. Founded in 1946, Methode specializes in providing solutions that integrate electrical connectors, sensors, switches, human-machine interface devices and power distribution modules. The company’s product portfolio addresses complex application requirements across a broad range of end markets, including automotive, industrial, energy, healthcare and data/telecommunications.
In its automotive segment, Methode develops advanced connector systems, circuit protection devices and thermal management solutions for internal combustion, hybrid and electric vehicles.
