Continuing with its choppy earnings history, EnerSys ENS reported fourth-quarter fiscal 2016 adjusted net earnings of $1.03 per share, beating the Zacks Consensus Estimate of $1.00 by 3% after missing estimates by 1.1% last quarter. However, the bottom line was down 10.4% from the year-ago tally of $1.15.
The company’s lukewarm top-line performance during the quarter hurt the bottom line. Moreover, a continued rise in operating expenses and restructuring & exit charges further lowered the bottom-line growth.
For fiscal 2016, adjusted earnings came in at $3.93 per share, down significantly from the prior-year figure of $4.32 per share. The fall was the result of a considerable negative impact of foreign currency translation, coupled with weak organic growth.
Inside the Headlines
Total revenue decreased about 2.9% year over year to $611.4 million during the quarter. Nevertheless, the top line comfortably surpassed the Zacks Consensus Estimate of $585 million.
Foreign currency translation accounted for a 2% decline in revenues. Moreover, decrease in organic volume caused a fall of another 2% in the top line. However, previously completed acquisitions continued to act as a tailwind and contributed 1% to revenue growth.
For fiscal 2016, net sales came in at $2,316.2 million, down 8% from the prior-year figure due to foreign currency translation impact and negative organic growth.
Coming back to the quarter, in terms of product lines, Reserve Power dropped 6.3% due to currency translation impact and lower organic volumes. Sluggishness in the global economy continues to trigger sharp decline in client spending for the Reserve segment, primarily in the Middle East and Americas. On the other hand, Motive Power products fell marginally (0.6%) on a year-over-year basis owing to currency translation impact, which offset the positives of organic volume growth.
In terms of geography, the EMEA region witnessed the steepest fall of 12% in sales. This was followed by Americas, which recorded a 4% fall in sales. Volumes were quite weak, and currency translation continued to act as a headwind for both these regions, resulting in the overall sales dip. However, the Asian region continued to chart solid growth, and sales were up 40% year over year, despite a 7% negative currency impact. The improvement came on the back of a 30% increase in organic volumes and 19% contribution from acquisitions.
EnerSys’ adjusted operating earnings for the quarter fell 3.7% year over year to $70.5 million. However, gross margin expanded 110 basis points to 26.3%.
Liquidity
As of quarter end, EnerSys had cash and cash equivalents of $397.3 million, up from $268.9 million at the end of fiscal 2015. Net debt stood at $334.5 million, up from $320.4 million at the end of fiscal 2015.
In fiscal 2016, net cash from operating activities came in at $307.6 million, compared with $232.5 million recorded in the prior year.
The Enser Acquisition
Subsequent to the end of the reported quarter, EnerSys acquired certain assets of The Enser Corporation, a leading manufacturer of molten salt "thermal" batteries. The buyout will help EnerSys expand its footprint in the aerospace and defense markets.
Enser’s assets will help EnerSys integrate new technologies into its products, while unlocking opportunities for realizing added synergies to its lithium businesses. The acquisition will broaden its capabilities in the design and development, testing, and automated manufacturing of thermal batteries for the U.S. Department of Defense as well as allied militaries.
EnerSys also recently completed the buyout of Australia-based ICS Industries, to complement its current stored energy business, including the reserve and motive power businesses. Since 2000, EnerSys has successfully acquired 33 companies, which have added about $1.8 billion to its top line.
Guidance
Concurrent with the earnings release, EnerSys reiterated its guidance for first-quarter fiscal 2017. The company expects non-GAAP earnings in a range of $1.08–$1.12, excluding projected charges of 4 cents per share from restructuring programs and acquisition-related expenses.
To Conclude
Despite being a dominant player in the lead-acid battery market, EnerSys’ financial performance over the past few quarters has been affected by the global slowdown in industrial spending. With more than half of its sales generated abroad, EnerSys has been grappling with formidable currency headwinds. Also, intensifying price wars continue to exert pressure on the company’s profit margins.
However, while the company’s top line has declined this year, its long-term growth trajectory trends upward, signaling great prospects for the business. Moreover, it has a penchant for strategic acquisitions which serve to further strengthen its core business lines. This bodes well for the expansion of its business and market share.
EnerSys currently holds a Zacks Rank #2 (Buy). Other stocks in the industry that are worth a look now include ESCO Technologies Inc. ESE, Powell Industries, Inc. POWL and Eaton Corporation plc ETN. All these stocks carry the same rank as EnerSys.
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