EnerSys (ENS) Q1 Earnings Beat, Revenues Miss, Stock Up

Shares of premium battery maker EnerSys (NYSE:ENS) surged 7.9% on Aug 11, following the company’s first-quarter 2017 results, which surpassed its guided range.

The company reported first-quarter fiscal 2017 adjusted net earnings of $1.14 per share, beating the Zacks Consensus Estimate of $1.10 by 3.6%. Also, the bottom line improved 14% from the year-ago tally of $1.00 and was ahead of the company’s expectations of $1.08 to $1.12 per share provided earlier.

The company’s diligent restructuring initiatives produced tangible improvements in short-term productivity, which drove bottom-line growth. Also, modest top-line growth proved conducive to earnings during the quarter.

Inside the Headlines

Total revenue was up 6.8% year over year to $600.6 million during the quarter. However, the top line fell short of the Zacks Consensus Estimate of $606 million.

The top-line improvement came on the back of 6% organic volume growth and 3% inorganic growth from acquisitions. However, currency fluctuations hurt top-line growth by 2%.

In terms of product lines, Reserve Power was up 12%. Organic volume growth (up 10%) and previously contributed acquisitions (contributed 5% growth) were the primary growth drivers for the Reserve Power product line. On the other hand, Motive Power product revenues rose 2.3% on a year-over-year basis owing to positive organic volume growth (up 3%) and benefits from favorable pricing (resulting in 1% growth).

In terms of geography, the Asian region continued to chart solid growth, and sales were up 52.3% year over year. The improvement came on the back of a 33% increase in organic volumes, 23% contribution from acquisitions and 2% from pricing. The Americas region witnessed 4.1% growth in sales. Meanwhile, a 5% increase in organic volumes and 1% contribution from acquisitions proved as growth drivers in the quarter. The EMEA region sales stood at $197.1 million, flat on a year-over-year basis. While the improvement in organic volume acted as tailwind, this was almost fully offset by currency translation and pricing headwinds.

EnerSys’ adjusted operating earnings for the quarter fell 4.3% year over year to $60.0 million. However, gross margin expanded 90 basis points to 27.7%. Improvements in gross margins came on the back of higher organic volume in all three business segments, product lines and lower commodity costs.

Liquidity

At the end of first-quarter fiscal 2017, EnerSys had cash and cash equivalents of $413.5 million, up from $397.3 million at the end of fourth-quarter fiscal 2016. On Jul 3, 2016, the company’s net debt stood at $607.8 million, marginally up from $606.2 million at the end of Mar 31, 2016.

In first-quarter fiscal 2017, net cash from operating activities came in at $67.5 million, compared with $82.3 million recorded in the prior-year quarter.

Guidance

Concurrent with the earnings release, EnerSys offered the guidance for second-quarter fiscal 2017. The company expects non-GAAP earnings in the range of $1.06–$1.10, excluding projected charges of 4 cents per share from restructuring programs and acquisition-related expenses.

Our Take

EnersSys started fiscal 2017 on a strong 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. Moreover, positive industry trends hold lucrative prospects for both of its product lines, adding to the company’s 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 and macroeconomic uncertainties may dent the company’s near-term prospects.

EnerSys currently carries a Zacks Rank #3 (Hold). Better-ranked stocks include Franklin Electric Co., Inc. (NASDAQ:FELE) , AO Smith Corp. (NYSE:AOS) and ACCO Brands Corporation (NYSE:ACCO) . All the three stocks carry a Zacks Rank #2 (Buy).