It has been about a month since the last earnings report for EnerSys (ENS). Shares have added about 1.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is EnerSys due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
EnerSys Q2 Earnings & Revenues Top Estimates, Up Y/Y
EnerSys reported better-than-expected second-quarter fiscal 2020 (ended Sep 29, 2019) results, wherein both earnings and revenues surpassed estimates.
The company’s adjusted earnings were $1.23 per share, beating the Zacks Consensus Estimate of $1.20. Also, the bottom line increased 5.1% from the year-ago figure of $1.17.
In the quarter, EnerSys’ net sales were $762.1 million, reflecting growth of 15.4% from the year-ago quarter. The improvement was driven by 22% positive impact of the Alpha acquisition, partially offset by 4% decrease in organic volumes, 1% decline in pricing and forex woes of 2%. Moreover, the top line beat the Zacks Consensus Estimate of $758 million.
Sales generated from the reserve power product line totaled $427 million, increasing 36.4% year over year while that from motive power declined 3.5% to $335 million.
The company reports net sales under three segments as discussed below:
Revenues from the Americas (representing roughly 68.9% of the quarter’s net sales) were $524.9 million, increasing 35.1% year over year. The rise was driven by 38% increase from acquired assets, partially offset by 1% adverse impact of forex woes and 1% decline in organic volume.
Revenues from Europe, Middle East and Africa (24%) totaled $183 million, declining 10.3% year over year. The decline was attributable to 4% fall in organic volumes, 5% adverse impact of forex woes and adverse impact of 1% from unfavorable pricing.
Revenues from Asia (7.1%) were $54 million, down 20.1%. Decline in organic volume affected results by 17% and forex woes had an adverse 3% impact.
In the quarter, EnerSys’ cost of goods sold was $564.8 million. It represented 74.1% of net sales. Gross profit increased 22.6% year over year to $197.3 million, with margin increasing 150 basis points to 25.9%.
Operating expenses were $122.4 million, representing 16.1% of net sales. Total operating earnings decreased 7.2% to $58.7 million.
Balance Sheet and Cash Flow
Exiting the second quarter of fiscal 2020, EnerSys had cash and cash equivalents of $424.8 million compared with $545.2 million at the end of the year-ago quarter. Long-term debt was $1,117.8 million, up 86.4% year over year.
During the first six months of fiscal 2020, the company generated net cash of $105.1 million from operating activities. Capital expenditure totaled $43.4 million compared with $35.5 million incurred in the year-earlier quarter.
For the third quarter of fiscal 2020 (ending December 2019), EnerSys anticipates adjusted earnings of $1.12-$1.16 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -14.07% due to these changes.
Currently, EnerSys has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, EnerSys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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