EnerSys (ENS) Down 2.5% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for EnerSys (ENS). Shares have lost about 2.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is EnerSys due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
EnerSys Q2 Earnings and Revenues Surpass Estimates
EnerSys reported impressive results for second-quarter fiscal 2023 (ended Oct 2, 2022). ENS’ earnings beat the Zacks Consensus Estimate of $1.09 by 1.8% and sales beat the same by 1.1%.
The bottom line increased 9.9% from the year-ago figure of $1.01 driven by higher sales generation across all segments.
Revenue Details
In the quarter under review, EnerSys’ revenues were $899.4 million, up 13.7% from the year-ago quarter. Organic sales in the quarter grew 10% on the back of strengthening markets. Pricing positively impacted sales by 9%, while forex woes left a negative impact of 5%.
While exiting the reported quarter, EnerSys had a backlog of $1.4 billion.
ENS’ revenues beat the Zacks Consensus Estimate of $890 million.
Geographically, ENS' net sales increased 20% year over year to $661 million in the Americas, while the metric witnessed a decline of 1% to $178 million in Europe, the Middle East and Africa. Sales in Asia were $61 million, in line with the year-ago quarter.
Segmental performance for the fiscal second quarter is briefly discussed below:
Energy Systems' sales were $437 million, contributing 48.6% to net revenues in the quarter under review. On a year-over-year basis, the segment's revenues increased 18%. Volume was up 14%, while pricing had a positive impact of 9%. Adverse foreign currency translations hurt 5%.
The Motive Power segment generated revenues of $338 million, contributing 37.6% to net revenues in the reported quarter. The figure increased 17% year over year based on 3% growth in volumes and a 9% contribution from pricing. Forex woes left a negative impact of 7%.
Specialty sales were $124 million, contributing 13.8% to net revenues in the quarter under review. On a year-over-year basis, the segment's revenues increased 23%. Volume and pricing had a positive impact of 19% and 7%, respectively, on the quarter, while foreign currency translations had a negative impact of 3%.
Margin Profile
In the reported quarter, EnerSys' cost of sales increased 14.8% year over year to $703 million. The cost of sales was 78.2% of the quarter's net sales. The gross profit in the quarter increased 9.6% year over year to $194.8 million, while the gross margin decreased 80 basis points (bps) year over year to 21.7%.
Operating expenses increased 9.7% year over year to $137.4 million. The metric represented 15.3% of net sales in the reported quarter compared with 15.8% in the year-ago quarter. Adjusted operating earnings were $65.4 million, increasing 6.6% year-over-year. The margin decreased 50 bps year over year to 7.3%.
ENS' performance in the quarter suffered cost inflation and supply-chain constraints. However, pricing actions provided relief.
Balance Sheet and Cash Flow
While exiting the second quarter of fiscal 2023, EnerSys had cash and cash equivalents of $294.4 million, down 26.9% from $402.5 million recorded in the fourth quarter of fiscal 2022. Long-term debt increased 4.2% to $1,295.8 million from $1,243 million recorded in the fourth quarter of fiscal 2022.
In the first six months of fiscal 2023, ENS repaid short-term debt of $17.1 million and revolving credit borrowings of $184.1 million. However, proceeds for revolving credit borrowings were $244.1 million in the first six months of fiscal 2023.
EnerSys used net cash of $70.3 million for its operating activities in the first six months of fiscal 2023 compared with $65.6 million used in the year-ago period. Capital expenditure totaled $39.7 million compared with $34.6 million in the previous year’s period.
ENS rewarded its shareholders with a dividend payout of $14.2 million in the first six months of fiscal 2023. Share repurchased amounted to $22.9 million. ENS is left to buy back shares worth $185 million.
Outlook
EnerSys anticipates gaining from robust order level. The company expects to benefit from a slowdown as large portions of its business are cycle-independent and its significant cash flow generation during past recessionary periods in the quarters ahead. However, microeconomic conditions, forex woes and the European utility inflation are worrisome. Earnings for the third quarter of fiscal 2023 are expected to be $1.20-$1.30 per share. The gross margin is expected to be in the range of 21-23%. Capital expenditure is anticipated to be approximately $100 million for fiscal 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
VGM Scores
At this time, EnerSys has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise EnerSys has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
EnerSys belongs to the Zacks Manufacturing - Electronics industry. Another stock from the same industry, Emerson Electric (EMR), has gained 1% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Emerson Electric reported revenues of $5.36 billion in the last reported quarter, representing a year-over-year change of +8.4%. EPS of $1.53 for the same period compares with $1.21 a year ago.
Emerson Electric is expected to post earnings of $0.88 per share for the current quarter, representing a year-over-year change of -16.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +0%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for Emerson Electric. Also, the stock has a VGM Score of D.
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