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EnerSys (ENS) Q2 Earnings Trump Estimates, Revenues Up Y/Y

Zacks

Industrial battery manufacturer EnerSys ENS reported second-quarter fiscal 2018 adjusted earnings of $1.05 per share, beating the Zacks Consensus Estimate by a penny. However, the bottom line declined 8.7% from the year-ago tally of $1.15, despite healthy revenue growth.

Inside The Headlines

Net sales for the quarter were up 7.2% year over year to $617.3 million. The figure also trumped the Zacks Consensus Estimate of $601 million. The year-over-year increase was driven by favorable pricing actions, increase in organic volume and positive impact of foreign currency translation.

In terms of geography, all regions recorded year-over-year growth. The Americas witnessed a year-over-year sales improvement of 5.1% driven by higher volumes and favorable pricing. Net sales for the EMEA region were up 9.6%, while Asia’s net sales rose 10.3%. Europe enjoyed favorable pricing actions and positive currency movements, while Asia benefited from strong organic growth, higher volumes and favorable pricing.


On a product-line basis, Motive Power net sales climbed 9% year over year to $325 million, while Reserve Power went up 5% to $292 million. Motive Power benefited from a 4% increase in price, 2% volume increase and a 2% currency benefit. Reserve Power growth was driven by a 4% increase in price and 1% positive impact of foreign currency.

EnerSys’ operating earnings for the quarter totaled $64 million, up 1.7% on year-over-year basis. The impact of solid top-line growth was somewhat offset by a $10-million headwind from elevated commodity costs which could not be recovered from pricing actions.The company incurred $34 million in higher commodity costs on a year-over-year basis in the reported quarter.

Enersys Price, Consensus and EPS Surprise

Liquidity

At the end of the fiscal second quarter, EnerSys had cash and cash equivalents of $540 million, up from $500.3 million at the end of fiscal 2017. The company’s net debt was $312.6 million, up from $216.6 million at the end of fiscal 2017.

Fiscal year to date, cash from operating activities came in at $45.5 million. The company’s credit agreement leverage ratio was just above 1.3 times. Capital expenditures came in at $27 million at the end of the reported quarter compared with $21 million incurred in fiscal 2017.

Guidance

EnerSys expects fiscal third-quarter adjusted earnings per share in the range of $1.12-$1.16. This guidance excludes projected charges of 4 cents from restructuring programs, ERP system implementation and acquisition expenses.

Our Take

EnerSys believes its long-term growth drivers are intact, which will continue to drive top-line performance in fiscal 2018. These factors include higher demand for premium products, lean initiatives, robust prospects in Asia, cost-reduction programs and strategic product launches.

The company is seeing greater code activity and contracts for increased spending from telecommunications companies in the United States, which will likely be beneficial for its business.

Further, it has an interesting line-up of product launches, which will boost growth in fiscal 2018. As a matter of fact, a rise in the sale of premium products has significantly boosted the top-line performance. Recently, the company rolled out several premium products which are anticipated to act as catalysts.

On the flip side, a significant portion of the company’s revenues and expenses are denominated in foreign currencies. This makes it vulnerable to fluctuations in exchange rates. Further, the company’s engineering expenses and CapEx investment planning costs continue to rise, which might hamper margins. Importantly, we predict elevated commodity cost pressure to weigh down on the financials in the coming quarters as well.

Zacks Rank & Stocks to Consider

EnerSys carries a Zacks Rank #4 (Sell), at present.

Some better-ranked stocks in the industry include Sun Hydraulics Corporation SNHY, Gorman-Rupp Company (The) GRC and Kadant Inc KAI, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sun Hydraulics has a positive average earnings surprise of 9.6% for the trailing four quarters, having beaten estimates thrice.

Gorman-Rupp surpassed earnings estimates in three of the trailing four quarters, resulting in an average surprise of 23.5%.

Kadant has managed to beat estimates strongly each time in the trailing four quarters, for a positive earnings surprise of 20.3%.

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