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01/11 03:34
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A reveal strong financial metrics and optimistic guidance, particularly in data center growth, margin improvements, and a $1 billion share repurchase plan. Despite elevated lithium costs and government-related uncertainties, the company is mitigating risks well. The market cap of $4.17 billion suggests a moderate reaction, leading to a positive stock price movement prediction of 2% to 8% over the next two weeks.
Net Sales $951 million, up 8% year-over-year. Driven by a 3% positive impact from organic volumes, 3% positive price/mix, a 1% tailwind from FX, and a 1% benefit from Bren-Tronics.
Adjusted Gross Profit $277 million, up $23 million year-over-year. Excluding 45X benefits, it was up $16 million.
Adjusted Gross Margin 29.1%, up 70 basis points sequentially and up 40 basis points year-over-year. Excluding 45X, it was up 80 basis points sequentially and mostly flat year-over-year.
Adjusted Operating Earnings $130 million, up $15 million year-over-year. Excluding 45X benefits, it increased $8 million or 10%.
Adjusted Operating Margin 13.6%, up 20 basis points year-over-year. Excluding 45X, it was 9.5%.
Adjusted EBITDA $146 million, up $17 million year-over-year. Adjusted EBITDA margin was 15.3%, up 70 basis points year-over-year.
Adjusted Diluted EPS $2.56 per share, up 21% year-over-year. Excluding 45X, it was $1.51 per share, up 15%.
Energy Systems Revenue $435 million, up 14% year-over-year. Driven by stronger volumes, favorable price/mix, and a slightly positive FX impact.
Energy Systems Adjusted Operating Earnings $34 million, up 38% year-over-year. Adjusted operating margin was 7.7%, up 130 basis points year-over-year.
Motive Power Revenue $360 million, down 2% year-over-year. Lower volumes from macro headwinds offset favorable price/mix and FX tailwinds.
Motive Power Adjusted Operating Earnings $48 million, down $10 million year-over-year. Adjusted operating margin was 13.3%, down 240 basis points year-over-year.
Specialty Revenue $157 million, up 16% year-over-year. Driven by a 7% increase in organic volumes, a 7% benefit from Bren-Tronics acquisition, and a 1% increase from FX and price/mix.
Specialty Adjusted Operating Earnings $15 million, nearly double year-over-year. Adjusted operating margin was 9.2%, up 380 basis points year-over-year.
Operating Cash Flow $218 million, offset by CapEx of $21 million, resulting in free cash flow of $197 million, up $194 million year-over-year.
Free Cash Flow Conversion 288%. Excluding 45X, it was 196%.
Net Debt $842 million, an increase of $61 million since the end of fiscal '25. Leverage ratio at 1.3x EBITDA.
Share Repurchases 636,000 shares for $68 million at an average price of under $107 per share. Additional 325,000 shares repurchased post-quarter for $37 million.
Energy Systems: Revenue increased 14% year-over-year to $435 million, driven by stronger volumes, favorable price/mix, and FX impact. Adjusted operating earnings increased 38% to $34 million, with a 7.7% adjusted operating margin.
Motive Power: Revenue decreased 2% year-over-year to $360 million due to lower volumes from macro headwinds. Adjusted operating earnings were $48 million, down $10 million year-over-year. Maintenance-free product sales increased 14% year-over-year.
Specialty: Revenue increased 16% year-over-year to $157 million, driven by organic volumes, Bren-Tronics acquisition, and FX. Adjusted operating earnings nearly doubled to $15 million, with a 9.2% adjusted operating margin.
Data Centers: Strong growth driven by AI and energy resilience needs. Market is in the early phase of a multiyear growth cycle.
Aerospace and Defense (A&D): Robust demand with visibility to increasing sales in upcoming quarters due to rising global defense budgets.
Communications: Spending focused on network refreshes rather than expansions. Stable backlog.
Transportation: Improved demand signals with significant order inflection both sequentially and year-over-year.
Cost-Saving Initiatives: Reduction in force actions nearing completion, supporting $80 million annual cost-saving initiative. Benefits expected to grow in Q3 and Q4.
Centers of Excellence (CoEs): Launched three CoEs (lead-acid, power electronics, lithium) to improve product delivery and reduce costs. Examples include faster validation times and AI-driven defect detection.
Capital Spending: Reduced by 30% year-over-year to $21 million, focusing on higher return opportunities.
Lithium Cell Factory: Evaluating make versus buy options for lithium cell supply. Discussions with government officials are ongoing, with updates expected next quarter.
Tariff Mitigation: Offset $70 million annualized tariff exposure through supply chain actions and pricing strategies.
Sustainability: Published FY 2025 sustainability report, emphasizing energy savings, efficiency, and alignment with EnerGize framework.
Tariff Exposure: The company faces an estimated $70 million annualized direct tariff exposure for fiscal year 2026, down from $94 million due to supply chain mitigation. However, ongoing volatility and policy shifts could impact operations and financials.
Market Uncertainty: Order book does not yet reflect normalized market conditions, with dynamic conditions affecting demand. Q2 orders declined sequentially, and backlog in Motive Power decreased due to tariff uncertainty and pre-COVID buying patterns.
Motive Power Segment Challenges: Revenue decreased 2% year-over-year due to macroeconomic headwinds and lower volumes. Margins are temporarily pressured by higher costs from China tariffs and elevated lithium costs until sales volumes increase.
Supply Chain Risks: The company is exposed to supply chain disruptions, particularly in sourcing from countries affected by tariffs. Efforts to mitigate these risks are ongoing but remain a challenge.
Geopolitical and Defense Budget Volatility: Dynamic geopolitical environment and defense budget changes could impact demand for next-gen power technologies, creating uncertainty in the A&D segment.
Lithium Cell Supply Strategy: The company is evaluating make versus buy options for lithium cell supply, including plans for a lithium cell factory. Delays or challenges in this strategy could impact growth and operational efficiency.
Economic Environment: Mixed end-market demand trends and macroeconomic dynamics create uncertainty, affecting customer buying patterns and financial performance.
Q3 Fiscal 2026 Net Sales: Expected to range between $920 million to $960 million.
Q3 Fiscal 2026 Adjusted Diluted EPS: Expected to range between $2.71 to $2.81 per share, including $35 million to $40 million of 45X benefits. Excluding 45X, adjusted diluted EPS is expected to range between $1.64 to $1.74 per share, up 46% at the midpoint.
Full Fiscal 2026 CapEx Expectation: Approximately $80 million.
Full Fiscal 2026 Cost Savings: Expected to realize $30 million to $35 million of net savings related to cost reduction initiatives.
Full Year Adjusted Operating Earnings Growth: Expected to outpace revenue growth, excluding 45X benefits.
Motive Power Segment Outlook: Volumes expected to regain year-over-year growth in Q3 Fiscal 2026 as macroeconomic conditions stabilize. Lithium sales are expected to grow but may temporarily pressure margins due to higher costs.
Energy Systems Segment Outlook: Margins expected to improve as data center demand and communications recovery continue, supported by structural cost reductions.
Specialty Segment Outlook: Near-term margin expansion expected, driven by robust Aerospace & Defense (A&D) demand and ongoing cost and delivery gains from automation.
Data Center Market Outlook: Expected to remain a key growth vector, driven by a multiyear growth cycle fueled by AI and energy resilience needs.
Aerospace & Defense (A&D) Market Outlook: Visibility to increasing sales in upcoming quarters as government spending disruptions settle.
Dividends Paid: EnerSys paid $10 million in dividends during the second quarter.
Share Repurchases: EnerSys repurchased 636,000 shares for $68 million at an average price of under $107 per share during the second quarter. Additionally, since the quarter ended, the company repurchased an additional 325,000 shares for $37 million, leaving approximately $960 million in buyback authorization as of November 4th.
The earnings call summary and Q&A reveal strong financial metrics and optimistic guidance, particularly in data center growth, margin improvements, and a $1 billion share repurchase plan. Despite elevated lithium costs and government-related uncertainties, the company is mitigating risks well. The market cap of $4.17 billion suggests a moderate reaction, leading to a positive stock price movement prediction of 2% to 8% over the next two weeks.
The earnings call reveals strong financial performance in Energy Systems and Specialty Revenue, alongside positive guidance for margin improvements and strategic cost savings. Despite some challenges in Motive Power and unclear full-year guidance, management's confidence, evidenced by the $1 billion buyback program and strategic growth initiatives, indicates a positive outlook. The market cap suggests moderate stock reaction, leading to a 'Positive' prediction of 2% to 8% stock price increase.
The earnings call indicates strong financial performance with revenue and earnings growth, improved margins, and optimistic guidance. Despite some concerns about tariffs and market dynamics, management is confident in their strategies. Shareholder returns are positive with dividends and share repurchases, and the acquisition of Brentronics is contributing positively. The Q&A reveals management's cautious approach to guidance due to tariff uncertainties, but overall sentiment remains positive. Given the company's market cap, the stock price is likely to experience a positive movement, estimated between 2% to 8% over the next two weeks.
The earnings call highlights strong financial performance, including a 7% YoY revenue increase and significant EPS growth, despite some operational challenges and regulatory uncertainties. The company's strategic initiatives and acquisition impact are positive, and shareholder returns through dividends and buybacks are substantial. While guidance is paused due to tariff negotiations, the overall sentiment is positive, supported by strong earnings and optimistic guidance. The market cap suggests moderate sensitivity to these factors, leading to a positive stock price prediction over the next two weeks.
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