EnerSys' (ENS) Shares Climb 7.2% On Robust Q2 Earnings

EnerSys (NYSE:ENS) maintained its recent streak of earnings beats alive with its second-quarter fiscal 2017 adjusted earnings of $1.15 per share, which surpassed the Zacks Consensus Estimate of $1.08 by 6.5%. The bottom line fared even better on a year-over-year comparison, improving 18.6% from the prior-year tally of 97 cents.

The company’s shares were up 7.2% following the solid results.

EnerSys’ diligent restructuring initiatives produced tangible improvements in short-term productivity, which drove bottom-line growth. Also, lower commodity costs, higher volume and positive mix proved conducive to earnings during the quarter.

Inside the Headlines

Total revenue was up 1.2% year over year to $576 million during the quarter. However, the top line fell short of the Zacks Consensus Estimate of $586 million.

The year-over-year improvement came on the back of 2% organic volume growth, driven by the reserve and motive power businesses in Asia. Further, acquisitions contributed about 1%. However, currency fluctuations hurt top-line growth by 2%.

In terms of product lines, Reserve Power was up 1%. Organic volume growth (up 1%) and previously contributed acquisitions (2% growth) were the key growth drivers for the Reserve Power product line. Motive Power product revenues also inched up 1% on a year-over-year basis owing to positive organic volume growth (up 2%).

In terms of geography, the Asian region continued to chart solid growth with sales jumping 23% year over year. The improvement came on the back of a 17% increase in organic volumes, 4% contribution from acquisitions and 1% from pricing. The Americas region witnessed 1% growth in sales. A 1% increase in organic volumes and 1% contribution from acquisitions were growth drivers in the quarter. The EMEA region sales were $197.1 million, down 5% on a year-over-year basis. The region faced an organic decline as well as currency translation and pricing headwinds.

EnerSys’ adjusted operating earnings for the quarter rose 7% year over year to $70.9 million. Further, gross margin expanded 130 basis points to 28.5%, which was an all-time high. Improvements in gross margins came on the back of higher organic volume, lower commodity costs and positive mix.

Liquidity

At the end of the fiscal second quarter, EnerSys had cash and cash equivalents of $440.3 million, up from $397.3 million at the end of fourth-quarter fiscal 2016. At the quarter end, the company’s net debt stood at $284.4 million, down from $334.5 million at the end of fourth-quarter fiscal 2016.

During the quarter, net cash from operating activities came in at $113.9 million, compared with $307.6 million recorded in the prior-year quarter.

ENERSYS INC Price, Consensus and EPS Surprise

Guidance

Concurrent with the earnings release, EnerSys offered its guidance for third-quarter fiscal 2017. The company expects non-GAAP earnings in the range of $1.12–$1.16 per share, excluding projected charges of 13 cents from the continuation of its exit from South Africa, restructuring programs and acquisition-related expenses.

Our Take

EnerSys started fiscal 2017 on a robust note, with improvements recorded in most of its key financials, including gross profit, gross margin, adjusted operating profit, operating margin and earnings per share. Going forward, EnerSys plans to strengthen its foothold in selected geographies to gain market traction. The company’s keen eye for strategic acquisitions to strengthen its core business lines is expected to remain as a major growth driver.

EnerSys is increasing focus on higher margin products, which should boost margins. Positive industry trends and steady order growth further add to the bullish sentiment.

However, with more than half of its sales generated abroad, EnerSys has been impacted by global slowdown in industrial spending. Also, intensifying price wars, currency fluctuations and macroeconomic uncertainties may dent the company’s near-term prospects.

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

Stocks to Consider

Some better-ranked stocks in the broader sector include AO Smith Corp. (NYSE:AOS) , II-VI Inc. (NASDAQ:IIVI) and Applied Industrial Technologies Inc. (NYSE:AIT) . All the three companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

AO Smith has a robust earnings beat history, with an average positive earnings surprise of 5.9% over the trailing four quarters, beating estimates all through.

Applied Industrial Technologies has managed to beat estimates thrice over the trailing four quarters and has a positive earnings surprise of 4.9%.

II-VI Incorporated has registered a remarkable positive average surprise of over 39.8% over the four trailing quarters, driven by four strong consecutive beats.

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