Methode Electronics, Inc. Reports Fiscal 2Q 2021 Financial Results

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Methode Electronics, Inc., a global developer of custom engineered and application specific products and solutions, has announced its financial results for the fiscal second quarter of 2021 ended October 31, 2020. 

Fiscal Second Quarter 2021 Highlights

• Net sales were a record $300.8 million
• Electric and hybrid vehicle applications were over 9 percent of net sales
• Income from operations was a record $45.0 million, or 15.0 percent of net sales
• Net income was $38.6 million, or $1.01 per diluted share, and included $3.5 million of restructuring costs, or $0.09 per diluted share, and $2.8 million of government assistance, or $0.07 per diluted share
• Net cash provided by operating activities was $40.3 million

Consolidated Fiscal Second Quarter 20 2 1 Financial Results
Methode's net sales were a record $300.8 million, compared to $257.2 million in the same quarter of fiscal 2020. The increase in net sales was largely due to higher sales in the Automotive segment and favorable foreign currency translation. The increase was driven in part by the $32.0 million negative impact from the United Auto Workers (“UAW”) labor strike at General Motors (“GM”) in the same quarter of fiscal 2020. The quarter included $6.5 million positive impact from foreign currency translation, primarily related to the strengthening of the euro and Chinese renminbi.

Gross margin as a percentage of sales was 26.9 percent, compared to 26.7 percent in the same quarter of fiscal 2020. The increase was primarily due to the higher sales volume in all segments in the quarter, which resulted in increased overhead coverage, and was partially offset by $2.7 million of restructuring costs in cost of products sold related to actions taken to reduce overall costs and improve operational profitability. 

Selling and administrative expense as a percentage of sales was 10.2 percent, compared to 12.9 percent in the same quarter of fiscal 2020. Selling and administrative expense decreased $2.4 million from the same quarter of fiscal 2020 primarily due to lower compensation expense, stock-based compensation expense, and travel expense. Partially offsetting these lower costs, the company recognized $1.5 million of restructuring costs in selling and administrative expense related to actions taken to reduce overall costs and improve operational profitability.

Income from operations was a record $45.0 million, compared to $30.7 million in the same quarter of fiscal 2020. The increase was mainly due to the higher gross profit on higher sales volume.

Other income was $2.6 million, compared to $1.0 million in the same quarter of fiscal 2020. Included in other income was $3.3 million of government assistance received by certain foreign locations with respect to the COVID-19 pandemic. There was a $0.5 million gain on a sale of a business in the same quarter of fiscal 2020.

Income tax expense was $7.6 million, compared to $5.2 million in the same quarter of fiscal 2020. The income tax expense increase was primarily due to higher pre-tax income. The effective tax rate was 16.5%, compared to an effective tax rate of 17.9% in the same quarter of fiscal 2020.

Net income was $38.6 million, or $1.01 per diluted share, compared to $23.8 million, or $0.63 per diluted share, in the same quarter of fiscal 2020.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization of Intangibles), a non-GAAP financial measure, was $60.2 million, compared to $43.6 million in the same quarter of fiscal 2020.

Debt, which included the $100.0 million proactive draw from the company’s revolving credit facility in March 2020 due to COVID-19, was $347.6 million at the end of the quarter, down slightly compared to $352.1 million at the end of fiscal 2020. Net debt, a non-GAAP financial measure and includes debt less cash and cash equivalents, was $105.3 million, compared to $134.8 million at the end of fiscal 2020. In November, after the end of the fiscal second quarter, the company repaid $50.0 million on its revolving credit facility from the March 2020 draw.

Free cash flow, a non-GAAP financial measure and includes cash provided by operating activities less purchases of property, plant, and equipment, was $36.7 million, compared to $35.1 million in the same quarter of fiscal 2020.

Segment Fiscal Second Quarter 2021 Financial Results
Comparing the Automotive segment's quarter to the same quarter of fiscal 2020,

• Net sales were $215.7 million, up $35.6 million, or 19.8% from $180.1 million attributable to net sales increases of $11.1 million in North America, $5.5 million in Europe, and $19.0 million in Asia. The increase was driven in part by the $32.0 million negative impact from the UAW labor strike at GM in the same quarter of fiscal 2020. The increase in Asia was primarily due to higher electric vehicle and leadframe product volume.   The segment net sales in the quarter were also positively impacted $5.3 million from foreign currency translation.
• Gross margin as a percentage of sales was unchanged at 24.5 percent. The quarter included $2.6 million of restructuring actions, compared to $0.2 million in restructuring actions in the same quarter of fiscal 2020.
• Income from operations was $38.8 million, up $9.9 million, or 34.3% from $28.9 million primarily resulting from the higher gross profit, partially offset by the net restructuring actions taken in the quarter.

Comparing the Industrial segment's quarter to the same quarter of fiscal 2020, 

• Net sales were $67.9 million, up $3.0 million or 4.6% from $64.9 million primarily due to higher sales of busbar products including electric vehicle applications, partially offset by lower commercial vehicle lighting sales. The segment net sales in the quarter were also positively impacted $1.2 million from foreign currency translation.
• Gross margin as a percentage of sales was 35.9 percent, down from 37.8 percent primarily due to the lower sales of commercial vehicle lighting solutions in the quarter.
• Income from operations was $16.1 million, an increase from $15.1 million primarily resulting from lower selling and administrative expenses in the quarter.

Comparing the Interface segment's quarter to the same quarter of fiscal 2020,

• Net sales were $16.4 million, up $4.5 million or 37.8% from $11.9 million primarily due to higher sales volume of appliance products.
• Gross margin as a percentage of sales was 22.0 percent, up from 10.1 percent also due to higher sales volume of appliance products.
• Income from operations was $3.1 million, up from a loss of $0.2 million primarily due to higher gross profit and lower selling and administrative expense in the quarter, which was mainly due to the restructuring actions taken in the first quarter of fiscal 2021.

Comparing the Medical segment's quarter to the same quarter of fiscal 2020

• Net sales were $0.8 million, up from $0.3 million. The higher net sales were due to increased product acceptance.
• Loss from operations was $1.5 million, compared to a loss of $1.8 million.

Fiscal Third Quarter 2021 Guidance

For the fiscal third quarter of 2021, the company expects net sales in to be in the range of $265 to $285 million and diluted earnings per share to be in the range of $0.69 to $0.85 based on the near-term outlook, which is subject to disruption at any time due to a variety of factors including the ongoing COVID-19 pandemic situation. 

Management Comments
President and Chief Executive Officer Donald W. Duda said, “I continue to express my gratitude to our employees, who have not only demonstrated incredible commitment to the company in the midst of an ongoing pandemic, but who also helped propel us to a record quarter for sales and income from operations." 

Mr. Duda added, "For our fiscal third quarter, we will continue to face market uncertainty due to the pandemic. However, the demand we experienced in the second quarter and are seeing early in the third quarter gives us the confidence to provide sales and EPS guidance for the third quarter. In addition, our order book continues to build in EV programs resulting from our three-pronged approach to EV with user interface, power distribution, and LED lighting solutions."