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EnerSys (ENS) Up 7.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for EnerSys (ENS - Free Report) . Shares have added about 7.1% 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 its most recent earnings report in order to get a better handle on the important catalysts. <p style="text-align: justify;"><strong><u>Earnings Update</u></strong></p><p style="text-align: justify;">EnerSys 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.</p><p style="text-align: justify;">The company&rsquo;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.</p><p style="text-align: justify;"><strong>America &amp; EMEA Performance Drive Revenues</strong></p><p style="text-align: justify;">In the quarter under review, EnerSys&rsquo; 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%.</p><p style="text-align: justify;">The top line surpassed the Zacks Consensus Estimate of $647.2 million by 3.7%.</p><p style="text-align: justify;">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.</p><p style="text-align: justify;">The company reports its net sales in three segments discussed below:</p><p style="text-align: justify;">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.</p><p style="text-align: justify;">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.</p><p style="text-align: justify;">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.</p><p style="text-align: justify;"><strong>Margins Decline</strong></p><p style="text-align: justify;">In the quarter under review, EnerSys&rsquo; 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.</p><p style="text-align: justify;">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%.</p><p style="text-align: justify;"><strong>Balance Sheet and Cash Flow</strong></p><p style="text-align: justify;">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.</p><p style="text-align: justify;">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.</p><p style="text-align: justify;">During the reported quarter, the company used $7.4 million for paying dividends.</p><p style="text-align: justify;">Concurrent with the earnings release, the company&rsquo;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.</p><p style="text-align: justify;"><strong>Outlook</strong></p><p style="text-align: justify;">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.</p><p style="text-align: justify;">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.</p>

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, EnerSys has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

EnerSys has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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