METHODE ELECTRONICS INC (MEI)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used herein, “we,” “us,” “our,” the “Company” or “Methode” means Methode Electronics, Inc. and its subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect, when made, our current views with respect to current events and financial performance. Such forward-looking statements are subject to many risks, uncertainties and factors relating to our operations and business environment, which may cause our actual results to be materially different from any future results, express or implied, by such forward-looking statements. All statements that address future operating, financial or business performance or our strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential,” “outlook” or “continue,” and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:

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Dependence on the automotive, commercial vehicle, data center and construction industries;

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Timing, quality and cost of new program launches;

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Changes in electric vehicle (“EV”) demand;

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Investment in programs prior to the recognition of revenue;

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Effects from production delays or cancelled orders;

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Changes in global trade policies, including tariffs, and other costs of our global business;

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Changes, expiration, or renegotiation of the United States Mexico Canada Agreement (“USMCA”);

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Failure to attract and retain qualified personnel;

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Effects from inflation;

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Dependence on the availability and price of materials;

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Dependence on a small number of large customers;

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Dependence on our supply chain;

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Risks related to conducting global operations;

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Risks related to geopolitical conflicts;

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Effects of potential catastrophic events or other business interruptions;

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Our ability to withstand pricing pressures, including price reductions;

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Our ability to compete effectively;

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Our lengthy sales cycle;

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Contracts with customers are not for guaranteed volumes;

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Risks related to our exposure to technological change, customer concentration, and cyclical demand in the data center market;

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Potential work stoppages;

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Our ability to successfully benefit from acquisitions and divestitures;

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Our ability to manage our debt levels and refinance or extend our credit agreement;

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Our ability to comply with restrictions and covenants under our credit agreement;

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Interest rate changes and variable rate instruments;

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Timing and magnitude of costs associated with restructuring activities;

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Recognition of goodwill, other intangible asset, and long-lived asset impairment charges;

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Risks associated with inventory;

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Currency fluctuations;

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Income tax rate fluctuations;

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Judgments related to accounting for tax positions;

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Our ability to realize the benefits from our deferred tax assets;

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Risks associated with litigation;

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Risks associated with government inquiries;

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Risks associated with warranty claims;

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Effects of changing government regulations;

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Changing requirements by stakeholders on environmental or social matters;

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Effects of information technology (“IT”) disruptions or cybersecurity incidents;

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Our ability to innovate and keep pace with technological changes; and

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Our ability to protect our intellectual property.

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Additional details and factors are discussed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended May 2, 2026. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Any forward-looking statements made by us speak only as of the date on which they are made. We are under no obligation to, and expressly disclaim any obligation to, update or alter our forward-looking statements, whether as a result of new information, subsequent events or otherwise.

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Overview

We are a leading global supplier of custom engineered solutions with sales, engineering, and manufacturing locations in North America, Europe, the Middle East, and Asia. We design, engineer, and manufacture mechatronic products for Original Equipment Manufacturers (“OEMs”) and tiered suppliers across mobility, industrial, and commercial markets. Our capabilities include power distribution, including busbars, smart connect systems, battery disconnect units, and integrated circuit boards; as well as user interface components, specialized light-emitting diode (“LED”) lighting solutions, and sensor applications. Our business is managed on a segment basis, with those segments being Automotive, Industrial and Interface.

Our financial performance depends on varying conditions in the markets we serve. Our products are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing and data center infrastructure, and construction equipment. Demand in these markets tends to fluctuate in response to overall economic conditions. Our sales may also be affected by our customers’ inventory levels and production schedules, consumer adoption rates, and supply chain challenges. Our operations are also affected by geopolitical risks, currency fluctuations, political and economic uncertainty, tariffs and related trade disruptions, and regulatory and trade compliance matters.

Recent Trends and Market Conditions

Global Trade Environment

We operate a global manufacturing and sourcing footprint and our business is subject to tariffs, import duties, and other trade compliance regulations imposed by the jurisdictions in which we operate and subject us to a complex and evolving body of trade compliance laws and regulations. Failure to comply with trade program regulations could increase our manufacturing costs and may have a material effect on our results of operations, financial position, and cash flows. Beginning in 2025, the U.S. implemented tariffs across multiple jurisdictions in which we operate, including broad country-level and product-specific measures, which was followed by retaliatory tariffs and other trade actions against U.S. goods and services. In early 2026, the U.S. Supreme Court ruled that U.S. tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) on goods imported into the U.S. were unauthorized. Following the ruling, new tariffs were subsequently imposed under different statutes.

Given our various manufacturing sites, including Canada, China, Egypt, Europe and Mexico, the continuation or expansion of tariffs or other trade barriers could increase input costs, pressure margins or affect customer demand. During fiscal 2026, we mitigated these effects through a variety of strategies, including negotiated price adjustments and ongoing cost recovery arrangements with our customers, as well as supply chain optimization initiatives. To the extent similar mitigation efforts are insufficient, new or expanded tariffs could have a material effect on our results of operations, financial position, and cash flows.

Geopolitical Conflicts and Global Supply Chain Disruptions

The global economy continues to experience volatile disruptions to the commodity, labor, and transportation markets. The geopolitical tensions and military conflicts in the Middle East have affected global economic and security conditions. Continued or renewed conflict in the region may cause additional disruption to supply chains, including logistics issues and inflationary pressure on energy and transportation costs. We continue to work closely with suppliers and customers to mitigate and minimize the potential adverse effects from global supply chain disruptions. However, if we are not able to mitigate any direct or indirect supply chain disruptions, this may have a material effect on our results of operations, financial condition, and cash flows.

Vehicle Electrification

Our business in the future will be affected, in part, by the broad trend toward electrification. Adoption of electric vehicles (“EV”) has been slower than anticipated and certain of our customers have announced shifts to their EV strategies. As a result of these changes in EV consumer demand, we may experience production inefficiencies, including underutilized capacity and workforce disruptions, particularly if we are unable to redeploy excess capacity, which may have a material effect on our results of operations, financial condition, and cash flows.

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Consolidated Results of Operations

Our fiscal year ends on the Saturday closest to April 30, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year. Fiscal 2027 and fiscal 2026 are both 52-week years. The three months ended August 1, 2026 and August 2, 2025 are both 13-week periods. The following discussions of comparative results among periods should be reviewed in this context.

The table below compares our results of operations between the three months ended August 1, 2026 and the three months ended August 2, 2025:

Net sales

Net sales increased $24.9 million, or 10.4%, to $265.4 million in the three months ended August 1, 2026, compared to $240.5 million in the three months ended August 2, 2025. Foreign currency translation increased net sales by $1.9 million. Excluding foreign currency translation, net sales increased $23.0 million. The increase was primarily driven by higher sales volume and mix in the Industrial segment due to organic growth in the data center business and an increase in demand for on-highway and off-highway lighting products (including customer recoveries). The increase was partially offset by lower sales in the Interface segment due to a divestiture and program roll-offs as the consumer appliance business winds down.

Cost of products sold

Cost of products sold increased $20.7 million, or 10.5%, to $217.7 million (82.0% of net sales) in the three months ended August 1, 2026, compared to $197.0 million (81.9% of net sales) in the three months ended August 2, 2025. Foreign currency translation increased cost of products sold by $1.1 million. Excluding foreign currency translation, cost of products sold increased $19.6 million. The increase was primarily due to higher sales volumes and product mix, including material costs and freight inflation. The increase was partially offset by a divestiture and program roll-offs in the Interface segment.

Gross profit margin

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes included in this Annual Report. This discussion and analysis of our financial condition and results of operations also contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements because of a variety of factors, including those set forth under Item 1A, “Risk Factors” of this Annual Report. We undertake no duty to update any such forward-looking statements to conform to actual results or changes in our expectations.

Executive Overview

Our Business

We are a leading global supplier of custom engineered solutions with sales, engineering, and manufacturing locations in North America, Europe, the Middle East, and Asia. We design, engineer, and manufacture mechatronic products for Original Equipment Manufacturers (“OEMs”) and tiered suppliers across mobility, industrial, and commercial markets. Our capabilities include power distribution, including busbars, smart connect systems, battery disconnect units, and integrated circuit boards; as well as user interface components, specialized light-emitting diode (“LED”) lighting solutions, and sensor applications.

Our products are found in the end markets of transportation (including automotive, commercial vehicle, e-bike, aerospace, bus and rail), cloud computing and data center infrastructure, and construction equipment. Our business is managed on a segment basis, with those segments being Automotive, Industrial and Interface. In the fourth quarter of fiscal 2026, we divested our dataMate business and the consumer appliance business is winding down as programs roll-off, both of which are included in our Interface segment. We reported a fourth segment, Medical, through fiscal 2024. For more information regarding the business and products of these segments, see Item 1, “Business” of this Annual Report.

Trends Affecting Our Business

The following trends have significantly affected and may continue to affect our business, financial condition and results of operations. See the risk factors identified under Item 1A, “Risk Factors” of this Annual Report for more information.

Trade Policy/Tariffs

We are exposed to market risk from duties assessed on raw materials, component parts, and finished goods imported into the U.S. Beginning in 2025, the U.S. implemented new tariffs across multiple jurisdictions in which we operate, including broad country-level measures and product-specific tariffs affecting light and commercial vehicles, component parts, steel and aluminum, and other key inputs we source to manufacture our parts. These actions prompted retaliatory measures by certain trading partners and the long-term state of global trade policy remains unsettled.

Given our manufacturing operations across multiple jurisdictions, including Canada, China, Egypt, Europe, and Mexico, the continuation or expansion of tariffs and other trade barriers could increase input costs, pressure margins or affect customer demand. During fiscal 2026, we mitigated these effects through a variety of strategies, including negotiated price adjustments and ongoing cost recovery arrangements with our customers, as well as supply chain optimization initiatives. To the extent similar mitigation efforts are insufficient, new or expanded tariffs could have a material adverse effect on our results of operations, financial position, and cash flows.

Macroeconomic Conditions

The global economy continues to experience volatile disruptions including to the commodity, labor and transportation markets, arising from a combination of geopolitical events and various economic and financial factors. These disruptions have affected our operations and may continue to affect our business, financial condition and results of operations. As a result of continued inflation, we have implemented measures to mitigate certain adverse effects of higher costs. However, we have been unable to fully mitigate or pass through the increases in our costs to our customers, which will likely continue in the future.

Electrification

Our business in the future will be affected by the broad trend of electrification. The adoption of EVs has been slower than anticipated, in light of recent U.S. government policy changes, including the termination of certain consumer tax incentives for EV purchases and certain of our customers have announced shifts to their EV strategies. As a result of these changes in EV consumer demand, we may experience production inefficiencies, including underutilized capacity and workforce disruptions, particularly if we are unable to redeploy excess capacity, which could affect our financial condition, results of operations, and cash flows in the future.

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Global Supply Chain Disruptions

Although we saw improvements in our supply chain in fiscal 2026, including easing of the worldwide semiconductor supply shortage, new supply chain disruptions may occur in the future. In addition, we have experienced, and may continue to experience, business interruptions, including customer shutdowns and increased material and logistics costs and labor shortages. Changes in government regulations in areas including, but not limited to, trade and tariff regulations as noted above, could also increase our costs.

The US-Israeli strikes in Iran and the Iranian retaliatory strikes in the Middle East have also affected the global economy and given rise to potential global security issues that may adversely affect international business and economic conditions. This conflict in the Middle East may cause additional disruption in the supply chains, including logistics issues and inflationary challenges, which may adversely affect our business and results of operations. Additionally, certain of our customers and suppliers may be negatively affected by these events, which in turn may negatively affect the markets where we do business.

We continue to work closely with suppliers and customers to minimize the potential adverse effects from global supply chain disruptions. However, if we are not able to mitigate any direct or indirect supply chain disruptions, this may have a material adverse effect on our financial condition, results of operations and cash flows.

Consolidated Results of Operations

Our fiscal year ends on the Saturday closest to April 30 of the following year, typically resulting in a 52-week year, but occasionally giving rise to an additional week, resulting in a 53-week year. The fiscal year ended May 2, 2026 was a 52-week fiscal year. The fiscal year ended May 3, 2025 was a 53-week fiscal year. The fiscal year ended April 27, 2024 was a 52-week fiscal year. A detailed comparison of our results of operations between fiscal 2025 and fiscal 2024 can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2025 Annual Report on Form 10-K filed with the SEC on July 9, 2025.

The table below compares our results of operations between fiscal 2026 and fiscal 2025:

Net sales

Net sales decreased $28.9 million, or 2.8%, to $1,019.2 million in fiscal 2026, compared to $1,048.1 million in fiscal 2025. Foreign currency translation increased sales by $36.3 million. Excluding the effects of foreign currency translation, net sales decreased $65.2 million. The decrease was driven by program roll-offs in the Automotive and Interface segments, partially offset by customer recoveries of $22.5 million in the Automotive segment and higher sales volume in the Industrial segment. Additionally, there was one less week within fiscal 2026 as compared to fiscal 2025.

Cost of products sold

Cost of products sold decreased $67.7 million, or 7.7%, to $817.0 million (80.2% of net sales) in fiscal 2026, compared to $884.7 million (84.4% of net sales) in fiscal 2025. Foreign currency translation increased cost of products sold by $26.3 million. Excluding foreign currency translation, cost of products sold decreased $94.0 million. The decrease was primarily due to lower sales volume and product mix, improved operational efficiencies, including material, scrap, and freight, and lower inventory adjustments. Restructuring and impairment charges included within cost of products sold were $0.8 million in fiscal 2026, compared to $1.1 million in fiscal 2025.

Gross profit margin

Gross profit margin was 19.8% of net sales in fiscal 2026, compared to 15.6% of net sales in fiscal 2025. The increase in gross profit margin was primarily a result of customer recoveries and improved operational efficiencies in fiscal 2026.

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Selling and administrative expenses

Selling and administrative expenses increased $6.4 million, or 3.9%, to $170.3 million (16.7% of net sales) in fiscal 2026, compared to $163.9 million (15.6% of net sales) in fiscal 2025. Foreign currency translation increased selling and administrative expenses by $3.1 million. Excluding foreign currency translation, selling and administrative expenses increased $3.3 million. The increase was primarily the result of higher employee compensation costs and restructuring charges, partially offset by lower professional fees.

Restructuring and impairment charges included within selling and administrative expenses were $4.2 million in fiscal 2026, compared to $1.6 million in fiscal 2025. For fiscal 2026, restructuring and asset impairment charges included $1.1 million in asset impairments associated with the relocation of our corporate headquarters. Additionally, there was $2.8 million of expenses incurred for transaction costs and other strategic initiatives.

Professional fees in fiscal 2025 included $9.8 million for consulting and interim executive services provided by AlixPartners.

Amortization of intangibles

Amortization of intangibles decreased $0.3 million, or 1.3%, to $23.1 million in fiscal 2026, compared to $23.4 million in fiscal 2025. The decrease was a result of certain intangible assets being fully amortized in fiscal 2026.

Interest expense, net

Interest expense, net was $23.3 million in fiscal 2026, compared to $22.0 million in fiscal 2025. The increase was primarily due to the unfavorable effects of foreign exchange rates on the euro denominated interest.

Other expense (income), net

Other income, net was $3.8 million in fiscal 2026, compared to other expense, net of $4.2 million in fiscal 2025. In the fourth quarter of fiscal 2026, we divested our dataMate business and recognized a gain on the sale of $11.2 million. Net foreign exchange loss was $7.7 million in fiscal 2026, compared to $5.5 million in fiscal 2025. In addition, other income, net includes non-cash charges for unamortized debt issuance costs which were $0.6 million for fiscal 2026 compared to $1.2 million for fiscal 2025.

Income tax expense (benefit)

Income tax expense

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