SigmaTron International, Inc. (SGMA) faced a tough start to fiscal 2025 with a reported loss of 54 cents per share, marking a significant downturn from earnings of 4 cents per share in the previous year’s corresponding quarter.
Revenue took a hit as well, plummeting 14% year-over-year to $84.8 million, down from $98.1 million in the prior-year period.
Performance Challenges Surface
CEO Gary R. Fairhead attributed SigmaTron’s lackluster performance in the first quarter to ongoing soft demand in key customer segments, a trend that had been anticipated earlier. This subdued demand manifested in the drop in revenue compared to the same period last year. However, management hints at a potential revival in customer demand starting in late 2024, offering a glimmer of hope amid the gloom.
Financial Metrics in Review
The company’s gross profit witnessed a substantial decline, standing at $6.4 million versus $9.7 million in the previous year. Reduced volumes played a major role in this shrinkage, hampering SigmaTron’s ability to spread fixed costs over larger production runs. Consequently, the gross margin for the quarter fell to around 7.6% from 9.8% in the prior year.
While selling and administrative expenses held relatively steady at $6.6 million, a slight decrease from $6.8 million in the first quarter of fiscal 2024, the significant drop in gross profit led to an operating loss of $0.2 million compared to an operating income of $2.8 million in the previous year.
The burden of an “other expense” amounting to $2.3 million, mostly comprising interest expenses and debt-related costs, resulted in a pre-tax loss of $2.5 million. This loss was further compounded by a tax expense of $0.8 million, leading to a net loss of $3.3 million, a stark contrast to the net income of $0.3 million reported a year ago.
Guidance and Strategic Actions
Management remains cautiously optimistic about a market rebound in late 2024, with sequential quarterly revenue showing a 4.4% uptick from the last quarter of fiscal 2024 to the first quarter of fiscal 2025. Efforts to trim overhead and operational costs have been ongoing, with additional cost-cutting initiatives implemented in August 2024. SigmaTron’s strategy is centered on destocking to alleviate working capital constraints, demonstrating a proactive approach to financial management in turbulent times.
Strategic Financial Restructuring
SigmaTron has embarked on an initiative in collaboration with Lincoln International to enhance its financial structure and reduce debt, aiming to strengthen its balance sheet. This move is part of a broader strategy to navigate the prevalent market challenges across the industry. The company’s adaptability to market conditions through prudent cost management and operational adjustments is crucial as it positions itself for the expected uptick in customer activity levels in 2025.
