Premium manufacturer of industrial batteries EnerSys ENS reported third-quarter fiscal 2016 adjusted net earnings of 92 cents per share, missing the Zacks Consensus Estimate by a penny. However, the bottom line was down 15.6% from the year-ago tally of $1.09.
Despite unimpressive earnings, the company’s shares remained relatively flat (up 0.7%) during the regular trading session on Friday, largely on account of macroeconomic factors. Notably, Bank of Japan’s strategic decision to cut interest rates arrested January’s decline of S&P 500 stocks, spearheaded by a major rally in technology shares.
The company’s mediocre top-line performance during the quarter hurt the bottom line. Moreover, a rise in operating expenses, restructuring & exit charges, and interest expenses worsened the extent of the fall.
Inside the Headlines
Total revenue decreased about 6.1% year over year to $573.6 million during third-quarter fiscal 2016. Nevertheless, the top line surpassed the Zacks Consensus Estimate of $557 million.
Foreign currency translation accounted for a 7% decline in revenues. Moreover, decrease in organic volume caused a 1% fall. However, previously completed acquisitions acted as a tailwind and contributed 1% to revenue growth.
In terms of product lines, Reserve Power dropped 11.4% 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 1% on a year-over-year basis owing to currency translation impact, which offset the positives of organic volume and pricing growth.
In terms of geography, the EMEA region witnessed the steepest fall, of 18.8%, in sales. This was followed by Americas, which recorded 2.6% fall in sales. Currency translation acted as a primary headwind for both these regions, resulting in the overall sales dip. However, sales in the Asian region witnessed a solid rebound, up 28% year over year. The improvement came on the back of a 23% increase in organic volumes and 19% contribution from acquisitions.
Liquidity
As of Dec 27, 2015, EnerSys had cash and cash equivalents of $346.1 million, up from $320.6 million on Sep 27, 2015. Long-term debt, net of unamortized debt issuance costs, was $626.7 million, down from $643.1 million on Sep 27, 2015.
In the nine months ended Dec 27, 2015, net cash from operating activities came in at $232.7 million compared with $132.9 million recorded in the prior-year period.
Guidance
Concurrent with the earnings release, EnerSys offered guidance for fourth-quarter fiscal 2016. The company expects non-GAAP earnings in a range of 98 cents–$1.02, excluding anticipated charges of 4 cents per share from restructuring programs, ERP system implementation 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. Also, currency fluctuations and intensifying price wars continue to exert pressure on the company’s profit margins.
Going forward, we believe EnerSys’ inorganic prospects remain strong. In this regard, it is worth mentioning that the company’s buyout of Australia-based ICS Industries during the second quarter is proving to be beneficial.
EnerSys currently holds a Zacks Rank #4 (Sell). Better-ranked stocks in the industry include Dycom Industries Inc. DY, II-VI Inc. IIVI and CUI Global, Inc. CUI. While both Dycom and II-VI Inc. sport a Zacks Rank #1 (Strong Buy), CUI Global carries a Zacks Rank #2 (Buy).
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