Mayville Engineering (MEC)

Vertically integrated manufacturing solutions provider Mayville Engineering Company (NYSE:MEC) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 15.9% year on year to $135.6 million. The company’s full-year revenue guidance of $575 million at the midpoint came in 0.7% above analysts’ estimates. Its non-GAAP profit of $0.04 per share was $0.02 above analysts’ consensus estimates.

Company Overview

Originally founded solely on tool and die manufacturing, Mayville Engineering Company (NYSE:MEC) specializes in metal fabrication, tube bending, and welding to be used in various industries.

Engineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Belden (NYSE:BDC), IDEX (NYSE:IEX), and Illinois Tool Works (NYSE:ITW).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Mayville Engineering’s 2.8% annualized revenue growth over the last five years was sluggish. This fell short of our benchmarks and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Mayville Engineering’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Commercial Vehicle and Construction & Access, which are 37.5% and 14.4% of revenue. Over the last two years, Mayville Engineering’s Commercial Vehicle revenue (exhaust, engine components, fuel systems) averaged 2% year-on-year declines while its Construction & Access revenue (fenders, hoods, frames for heavy machinery) averaged 11.2% declines.

This quarter, Mayville Engineering’s revenue fell by 15.9% year on year to $135.6 million but beat Wall Street’s estimates by 0.8%.

Looking ahead, sell-side analysts expect revenue to grow 6.9% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Mayville Engineering has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 12.5% gross margin over the last five years. That means Mayville Engineering paid its suppliers a lot of money ($87.45 for every $100 in revenue) to run its business.

In Q1, Mayville Engineering produced a 11.3% gross profit margin, down 2.3 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Mayville Engineering was profitable over the last five years but held back by its large cost base. Its average operating margin of 3% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Mayville Engineering’s operating margin rose by 8 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Mayville Engineering generated an operating profit margin of 1.2%, down 3.6 percentage points year on year. Since Mayville Engineering’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Mayville Engineering, its EPS declined by 11.4% annually over the last five years while its revenue grew by 2.8%. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of Mayville Engineering’s earnings can give us a better understanding of its performance. A five-year view shows Mayville Engineering has diluted its shareholders, growing its share count by 6.2%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Mayville Engineering, its two-year annual EPS declines of 34.6% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q1, Mayville Engineering reported EPS at $0.04, down from $0.22 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Mayville Engineering has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.1%, subpar for an industrials business.

Taking a step back, an encouraging sign is that Mayville Engineering’s margin expanded by 6 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Mayville Engineering’s free cash flow clocked in at $5.37 million in Q1, equivalent to a 4% margin. This cash profitability was in line with the comparable period last year and its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Mayville Engineering historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Mayville Engineering’s ROIC has increased. This is a good sign, and we hope the company can continue improving.

Mayville Engineering reported $183,000 of cash and $106.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $58.05 million of EBITDA over the last 12 months, we view Mayville Engineering’s 1.8× net-debt-to-EBITDA ratio as safe. We also see its $6.07 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Mayville Engineering blew past analysts’ EPS expectations this quarter. We were also glad its full-year EBITDA guidance trumped Wall Street’s estimates. On the other hand, its Commercial Vehicle revenue missed. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 3.5% to $13.71 immediately after reporting.

Updated: May 22, 2025 at 11:07 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We cheer for all companies making their customers lives easier, but in the case of Mayville Engineering, we’ll be cheering from the sidelines. First off, its revenue growth was weak over the last five years. And while its rising cash profitability gives it more optionality, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

Mayville Engineering’s EV-to-EBITDA ratio based on the next 12 months is 4.7x. This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $22 on the company (compared to the current share price of $15.18).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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