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EnerSys (ENS) Beats on Q3 Earnings & Revenues, Guides Well

Zacks

EnerSys ENS delivered third-quarter fiscal 2018 adjusted earnings of $1.25 per share, beating the Zacks Consensus Estimate of $1.14. The bottom line fared even better on a year-over-year comparison, improving 5.9% from the prior-year tally of $1.18. The figure also steered past the projected range of $1.12-$1.16.

Inside the Headlines


Net sales for the quarter were up 16.9% year over year to $658.9 million. The figure also trumped the Zacks Consensus Estimate of $633.1 million. The year-over-year increase was driven by increase in organic volume, favorable pricing actions and positive impact of foreign currency translation.

Enersys Price, Consensus and EPS Surprise

Enersys Price, Consensus and EPS Surprise | Enersys Quote

On a geographic basis, all regions recorded year-over-year growth. The Americas recorded a year-over-year sales improvement of 12.5% primarily owing to strong growth in organic volume as well as favorable pricing. Net sales for the EMEA region witnessed an increase of 20.8%, while Asia’s net sales rose 27%. Europe witnessed increase in organic volume as well as favorable pricing actions and positive currency movements, while Asia benefited from strong organic volumes, favorable pricing and favorable impact of foreign currency translation.

In terms of product-line, Motive Power net sales climbed 13.5% year over year to $331.9 million, while Reserve Power went up 20.5% to $327 million. Motive Power benefited from an increase of 5%, each in organic volume and foreign currency translation impact along with 4% increase in pricing. Reserve Power growth was driven by an 11% increase in organic volume as well as a 5% positive impact of foreign currency.

The company’s operating earnings for the quarter totaled $68.4 million, up 24.1% on year-over-year basis. Gross margin contracted 200 basis points to 25.8%. Decline in gross margins can be attributed to increase in commodity costs, partially offset by an increase in organic volume as well as pricing.

Liquidity

At the end of the fiscal third quarter, EnerSys had cash and cash equivalents of $571.3 million, up from $500.3 million at the end of fiscal 2017. At the end of the reported quarter, the company’s long-term debt was $689 million, up from $587.6 million at the end of fiscal 2017.

As of Dec 31, 2017, the company’s cash from operating activities came in at $129.9 million, compared with $166.7 million recorded as of Jan 1, 2017.

Guidance

EnerSys expects fiscal fourth-quarter adjusted earnings per share in the range of $1.20-$1.24. This guidance excludes projected charges of 5 cents from restructuring programs, ERP system implementation and acquisition expenses.

Our Take

EnerSys believes long-term growth drivers are intact, which is likely 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.

Currently, both of the company’s segments namely, Motive Power and Reserve Power are witnessing good prospects. For Motive Power business, the company believes that China will provide the much-needed growth impetus, as the Chinese market grows on the back of the rise of middle-class population. The company believes Indian market to act as a strong catalyst for the Reserve Power Business.

However, the company is in the midst of a transformation, wherein it has been taking multiple long-term investments to boost growth. This might impact the company’s gross margins adversely in the coming quarters.

EnerSys currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

A few better-ranked stocks in the same space include Alarm.com Holdings, Inc. ALRM, Smith (A.O.) Corporation AOS and Deere & Company DE. While Alarm.com Holdings sports a Zacks Rank #1 (Strong Buy), A.O. Smith Corporation and Deere & Company carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alarm.com Holdings has an excellent earnings surprise history, surpassing estimates in the trailing four quarters, with an average beat of 65.4%.

A.O. Smith Corporation also boasts a decent earnings surprise history, exceeding estimates thrice in the trailing four quarters, with an average beat of 3.9%.

Deere & Company has posted earnings beat in the trailing four quarters, for an average beat of 19.5%.

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