SigmaTron Faces Tough Times Despite Recent Stock Gains
Shares of SigmaTron International, Inc. (SGMA) have seen a 3.2% rise since the company announced its earnings for the quarter ending on October 31, 2024, outperforming the S&P 500 index’s increase of 0.8% during the same period. However, the company’s stock has dropped dramatically by 40.7% over the past month, notably lagging behind the S&P 500’s modest gain of 0.4%.
For the fiscal second quarter of 2025, SigmaTron reported a net loss of $1.55 per share, a stark contrast to the breakeven earnings per share recorded in the same quarter last year.
The company’s revenue fell by 24% compared to the same time last year, reaching $74.7 million, down from $98.7 million.
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A Closer Look at Business Performance
SigmaTron’s gross profit for the quarter was reported at $6.9 million, down from $9.7 million the previous year. This decrease contributed to a tighter gross margin, driven by lower revenue and persistent supply chain problems. Operating income also fell, decreasing to $0.5 million from $3.1 million in the same period last year. Selling and administrative expenses saw a slight drop to $6.4 million from $6.6 million a year earlier.
SigmaTron International, Inc. Price, Consensus and EPS Surprise
SigmaTron International, Inc. price-consensus-eps-surprise-chart | SigmaTron International, Inc. Quote
Insights from Management
CEO Gary R. Fairhead reported ongoing revenue challenges, stating that sales decreased sequentially from $84.8 million in the first quarter to $74.7 million in the second quarter. He cited difficulties stemming from the broader economy and supply chain issues, including previous overordering of electronic components, which has inflated inventory levels.
Despite the reported losses, SigmaTron managed to achieve operational profitability in October 2024, thanks in part to restructuring efforts. Management remains hopeful for a recovery in demand by calendar 2025, as many clients are starting to increase orders in anticipation of better economic conditions.
Understanding the Revenue Decline
The drop in revenue was largely due to decreased backlog levels and inventory clearance measures in the electronics manufacturing sector. Additionally, past supply chain disruptions, alongside component overordering, have created subdued demand. The quarter’s net income was further impacted by one-time costs, totaling approximately $3.3 million, related to debt restructuring.
Future Outlook
While management did not provide formal revenue guidance, it foresees persistent weak revenues in the third fiscal quarter due to typical holiday slowdowns in North America and Asia. However, there are cautious signs of improved demand trending in 2025, driven by customer activity and new opportunities within the marketplace.
Recent Developments
On December 13, 2024, SigmaTron completed a major sale and leaseback transaction for its Elk Grove Village property. This agreement is expected to decrease the company’s bank debt and will result in a one-time capital gain of around $7 million, to be recorded in the fiscal third quarter. The management is actively pursuing strategic options to enhance the balance sheet and improve operational flexibility with assistance from the advisory firm Lincoln International.
The company has also made headway in reducing inventory during the quarter and remains focused on further reducing its debt levels.
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