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Why Is EnerSys (ENS) Down 13% Since Last Earnings Report?

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It has been about a month since the last earnings report for EnerSys (ENS - Free Report) . Shares have lost about 13% 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 the most recent earnings report in order to get a better handle on the important catalysts.

EnerSys Surpasses Q1 Earnings and Sales Estimates

EnerSys reported better-than-expected results for first-quarter fiscal 2021 (ended Jul 5, 2020). Its earnings surpassed estimates by 35.29%, while sales exceeded the same by 1.21%.

The company’s earnings in the fiscal first quarter were 92 cents per share, surpassing the Zacks Consensus Estimate of 68 cents. However, quarterly earnings declined 29.2% from the year-ago quarter’s figure of $1.30 on weak sales performance and a decline in margin.

Revenue Details

In the reported quarter, EnerSys’ net sales amounted to $704.9 million, down 9.7% year over year. The results were adversely impacted by an 11% fall in volumes, a 1% decline in price and a 2% impact from forex woes, partially offset by a 4% gain from acquired assets.

The company noted that the top line suffered from weakness in the Motive Power segment due to the adverse impacts of the pandemic.

However, EnerSys’ top line surpassed the Zacks Consensus Estimate of $696.5 million.

Geographically, the company’s net sales decreased 9% year over year to $491 million in the Americas, while the metric witnessed a fall of 20% to $159 million in Europe, Middle East and Africa. Sales in Asia were $55 million, reflecting a decrease of 8% from the year-ago quarter.

The company reports revenues under three segments. A brief discussion of the quarterly results is provided below:

Energy Systems’ sales were $353.4 million, which contributed 50.1% to net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues declined 0.1%. Volume was down 3% and pricing had an adverse impact of 1%. Forex woes too played spoilsport, leading to a 2% decline in sales. However, acquired assets boosted sales by 6%.

The Motive Power segment generated revenues of $262.8 million, contributing 37.3% to net revenues in the reported quarter. The figure decreased 23.6% year over year due to a 21% impact of lower volume, 1% from weak prices and 2% from forex woes.

Specialty’s sales were $88.7 million, which contributed 12.6% to net revenues in the quarter under review. On a year-over-year basis, the segment’s revenues increased 8.2%. Volumes declined 4% in the quarter, while acquisitions had a positive impact of 12%.

Margin Profile

In the reported quarter, EnerSys’ cost of sales declined 8.4% year over year to $529.9 million. Cost of sales was 75.2% of the quarter’s net sales. Gross profit in the quarter decreased 13.2% year over year to $175 million, while gross margin fell 100 basis points (bps) year over year to 24.8%.

Operating expenses decreased 8% year over year to $120.4 million. It represented 17.1% of net sales in the reported quarter versus 16.8% in the year-ago quarter. Operating earnings were $61.2 million, reflecting a year-over-year decline of 21.2%. Margin decreased 130 bps year over year to 8.7%.

Interest expenses declined 6.7% year over year to $10.2 million.

Balance Sheet & Cash Flow

Exiting the first quarter of fiscal 2021, EnerSys had cash and cash equivalents of $384.4 million, up 17.6% from $327 million recorded in the last reported quarter. Long-term debt decreased 2.2% sequentially to $1,080.5 million.

During the quarter, the company repaid term loan of $8.4 million and revolving credit borrowings of $55 million. However, proceeds for revolving credit borrowings were $35 million.

The company generated net cash of $116.6 million from operating activities in the quarter, reflecting an increase from $30.4 million generated in the year-ago quarter. Capital expenditure totaled $26.3 million compared with $17.3 million in the previous-year quarter.

Dividend

EnerSys rewarded shareholders with a dividend payout of $7.4 million in first-quarter fiscal 2021.

Outlook

Though uncertainties related to the pandemic are concerning, EnerSys anticipates gaining from initiatives related to operational expenses and solid product offerings in the quarters ahead.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 18.29% due to these changes.

VGM Scores

Currently, EnerSys has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, 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 A. 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.


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