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EnerSys (ENS) Q1 Earnings Meet Estimates, Rise on Solid Sales

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EnerSys (ENS - Free Report) has reported in-line results for the first quarter of fiscal 2019 (ended Jul 1, 2018). This result came in after three consecutive quarters of reporting an earnings beat.

The company’s adjusted earnings in the reported quarter were $1.17 per share, in line with the Zacks Consensus Estimate. However, the bottom line increased 4.5% from the year-ago tally of $1.12.

America & EMEA Performance Drive Revenues

In the quarter under review, EnerSys’ net sales were $670.9 million, reflecting growth of 7.8% from the year-ago quarter. The improvement was driven by organic volume growth of 5%, positive impact of 2% from favorable pricing and forex tailwinds of 1%.

The top line surpassed the Zacks Consensus Estimate of $647.2 million by 3.7%.

Sales generated from reserve power product line totaled $324 million, increasing 6.2% year over year while that generated from motive power grew 9.3% to $346.9 million.

The company reports its net sales in three segments discussed below:

Revenues from the Americas segment were $392.5 million, increasing 10.7% year over year. The improvement was driven by 2% gain from favorable pricing and 9% organic volume growth.

Revenues from the Europe, Middle East and Africa (EMEA) segment totaled $210.5 million, increasing 5.7% year over year. Pricing had a 2% positive impact while forex tailwinds added 4% to sales growth.

Revenues from the Asia segment were $67.9 million, decreasing 1.5% year over year. Positive impact of 4% forex tailwinds and 1% favorable pricing were more than offset by a 7% decline in organic volumes.

Margins Decline

In the quarter under review, EnerSys’ cost of goods sold increased 10% year over year to $505.1 million. It represented 75.3% of net sales compared with 73.7% in the year-ago quarter. Gross margin decreased 160 basis points (bps) year over year to 24.7%. Commodity costs inflation was a drag by $16 million. However, the adverse impacts were partially offset by organic volume growth and favorable pricing.

Operating expenses grew 7.3% year over year to $99.4 million. It represented 14.8% of net sales. Operating income in the quarter under review decreased 8.3% year over year to $64.2 million. Operating margin slipped 580 bps to 64.2%.

Balance Sheet and Cash Flow

Exiting the fiscal first quarter, EnerSys had cash and cash equivalents of $512.5 million, roughly 1.8% below $522.1 million at the end of the last-reported quarter. Long-term debt balance increased 1.7%, sequentially, to $589.3 million.

In the fiscal first quarter, the company generated net cash of $25.6 million from its operating activities, reflecting 18.3% growth from the year-ago quarter. Capital expenditure totaled $15.5 million versus $13.1 million in the fiscal first quarter of 2018.

During the reported quarter, the company used $7.4 million for paying dividends.

Concurrent with the earnings release, the company’s board of directors approved payment of a quarterly cash dividend of 17.5 cents per share to shareholders of record as on Sep 14, 2018. The payment will be made on Sep 28.

Outlook

EnerSys anticipates profitability improvement in the second half of fiscal 2019, driven by solid demand for products and lower commodity costs (if lead costs are maintained at current levels) after the fiscal second quarter.

Adjusted earnings per share are predicted to be $1.14-$1.18. This guidance excludes 6 cents per share charge related to ERP system implementation, restructuring programs and acquisition costs.

Enersys Price, Consensus and EPS Surprise
 

Enersys Price, Consensus and EPS Surprise | Enersys Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $3.4 billion, EnerSys currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Industrial Products sector are Altra Industrial Motion Corp. (AIMC - Free Report) , Chart Industries, Inc. (GTLS - Free Report) and Barnes Group Inc. (B - Free Report) . While both Altra Industrial Motion and Chart Industries sport a Zacks Rank #1 (Strong Buy), Barnes Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks have improved for the current year and the next year. The average positive earnings surprise for the last four quarters was 4.01% for Altra Industrial Motion, 29.36% for Chart Industries and 6.88% for Barnes Group.

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