Methode To Cut Nearly 25% Of Work Force, Posts 3Q Loss

   DOW JONES NEWSWIRES 
 

Methode Electronics Inc. (MEI) will cut 850 jobs as the company looks to reduce its exposure to the North American auto industry. Meanwhile, the company swung to a fiscal third-quarter loss on write-downs and restructuring charges.

The company said it would also move manufacturing operations to lower-cost regions to cut costs. After the restructuring, all its manufacturing will be in Mexico, Malta and China.

In January, Methode announced it would restructure its U.S.-based automotive operations and stop producing some products in its Interconnect segment, which deals with the installation of fiber-optic and copper systems in appliances and various electronics.

It added Ford Motor Co. (F) production at its Reynosa, Mexico, facility - which contributed "a substantial portion" to the quarter's loss - will move to another supplier while Methode closes one of its three plants in Shanghai and indefinitely postpones adding one in Morocco.

The company expects a charge of $9 million to $18 million related to the restructuring.

U.S. auto makers are pinning their hopes on a recovery in retail demand, but last month's industrywide sales slid 42%, an amount the companies admitted was unsustainable. Executives admitted concern about a February performance that casts doubt on the viability of restructuring plans designed to keep General Motors Corp. (GM) and Chrysler LLC out of bankruptcy protection with government aid, while rivals trim capacity and boost incentives.

On Thursday, Methode President and Chief Executive Donald W. Duda said, "We have accelerated our strategy to reduce our exposure to the legacy automotive business, particularly with the Detroit auto makers." He added the actions are seen reducing Methode's revenue derived from the auto industry to less than 40% within two years, nearly half that of four years ago.

Meanwhile, the electronic parts and devices maker posted a net loss of $27 million, or 74 cents a share, compared with year-earlier net income of $9.8 million, or 26 cents a share. The latest results included 61 cents in write-downs and restructuring charges.

Net sales for the quarter ended Jan. 31 fell 42% to $80.8 million.

Gross margin fell to 12.7% from 21.3% on the company's inability to adjust overhead costs to meet the sudden drop in sales.

The company said automotive-segment revenue was hurt by the continued softening of the global economy, especially its effect on the North American auto industry, and by "negligible Chrysler sales volumes."

Methode's shares closed Wednesday at $3.43 and haven't traded premarket. The stock has lost 64% of its value in the last three months.

-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089; [e-mail]