EnerSys (NYSE: ENS), the global leader in stored energy solutions for industrial applications, announced today results for its first quarter of fiscal 2024, which ended on July 2, 2023.
Message from the CEO |
EnerSys delivered record first quarter results with operating earnings of $89 million and adjusted operating earnings of $107 million, the highest in our Company’s history. Revenue of $909 million was up 1% year-over-year, as order patterns are trending toward more normalized levels across most of our end markets and we continue to retain price. Gross margin performance in the quarter was outstanding at 26.4%, including the $19 million benefit to cost of goods sold from tax credits related to IRC 45X created by the Inflation Reduction Act (IRA). Even excluding the IRA benefit, we achieved a 24.7% gross margin, our highest in 10 quarters. We realized record GAAP diluted EPS of $1.60 and record adjusted diluted EPS of $1.89, an increase of $0.74 over prior year and included $0.47 benefit from IRA. In the quarter, we reduced leverage to 1.5X EBITDA on strong operating cash flow of $75 million. Our healthy balance sheet provides the flexibility to continue investing for long-term growth and returning capital to shareholders.
In view of our earnings growth, our Board of Directors approved an increase in our quarterly dividend to $0.225 which represents an 29% increase. As part of our disciplined capital allocation strategy, we are committed to a competitive dividend with plans to grow the dividend as earnings grow, excluding the impact of the IRA benefits, over time.
At our recent investor day, we provided an in-depth update on our strategic plans, growth drivers, and long-term outlook. We also introduced our strategic framework of “Innovate, Optimize, and Accelerate”. We are focused on executing this strategy through innovative new product launches, furthering our operational excellence efforts, and deploying our IRA benefits to accelerate our strategy with energy transition to high density batteries, both Thin Plate Pure Lead and lithium-ion. Our agnostic approach to battery chemistry enables us to provide our customers with the best energy and power solutions to meet their needs.
We began the site selection process for the lithium battery gigafactory in the United States we announced last month in partnership with Verkor, a European leader in battery technology. This new factory represents a long-term growth opportunity for both companies and allows EnerSys to optimize cell sizing in battery solutions for our customers while providing independence from non-domestic cell suppliers. We are particularly excited about the scale and flexibility this factory will provide, with both large production capacity and the ability to create custom cells.
The opportunities in front of us are immense. We have a resilient business model and clear strategy to accelerate profitable growth. Our team is determined to execute and deliver on our fiscal and sustainability commitments to drive value creation for all of our stakeholders. We are proud to see the benefits of the investments we have made over the last several years have begun to materialize in our financial results.
David M. Shaffer, President and Chief Executive Officer, EnerSys
Key Financial Results and Metrics | First quarter ended | ||||||||
In millions, except per share amounts | July 2, 2023 | July 3, 2022 | Change | ||||||
Net Sales | $ | 908.6 | $ | 899.0 | 1.1 | % | |||
Diluted EPS (GAAP) | $ | 1.60 | $ | 0.75 | $ | 0.85 | |||
Adjusted Diluted EPS (Non-GAAP)(1) | $ | 1.89 | $ | 1.15 | $ | 0.74 | |||
Gross Margin (GAAP) | $ | 240.3 | $ | 185.5 | $ | 54.8 | |||
Operating Earnings (GAAP) | $ | 89.4 | $ | 50.1 | $ | 39.3 | |||
Adjusted Operating Earnings (Non-GAAP)(2) | $ | 107.2 | $ | 64.8 | $ | 42.4 | |||
Net Earnings (GAAP) | $ | 66.8 | $ | 31.0 | $ | 35.8 | |||
EBITDA (Non-GAAP)(3) | $ | 111.4 | $ | 72.0 | $ | 39.4 | |||
Adjusted EBITDA (Non-GAAP)(3) | $ | 122.2 | $ | 85.5 | $ | 36.7 | |||
Share Repurchases | $ | — | $ | 22.9 | $ | (22.9 | ) | ||
Dividend per share | $ | 0.175 | $ | 0.175 | $ | — | |||
Total Capital Returned to Stockholders | $ | 7.1 | $ | 30.0 | $ | (22.9 | ) | ||
(a) Net leverage ratio is a non-GAAP financial measure as defined pursuant to our credit agreement and discussed under Reconciliations of GAAP to Non-GAAP Financial Measures.
(1) Adjusted Diluted EPS is a non-GAAP financial measure and discussed under Reconciliations of GAAP to Non-GAAP Financial Measures.
(2) Operating Earnings are adjusted for charges that the Company incurs as a result of restructuring and exit activities, impairment of goodwill and indefinite-lived intangibles and other assets, acquisition activities and those charges and credits that are not directly related to operating unit performance. A reconciliation of operating earnings to Non-GAAP adjusted earnings are provided in tables under the section titled Business Segment Operating Results.
(3) Net Earnings are adjusted for depreciation, amortization, interest and income taxes to arrive at Non-GAAP EBITDA. Non-GAAP Adjusted EBITDA is further adjusted for certain charges such as restructuring and exit activities, impairment of goodwill and indefinite-lived intangibles and other assets, acquisition activities and other charges and credits as discussed under Reconciliations of GAAP to Non-GAAP Financial Measures.
Summary of Results
First Quarter 2024
Net sales for the first quarter of fiscal 2024 were $908.6 million, an increase of 1.1% from the prior year first quarter net sales of $899.0 million and decreased 8.2% from the fourth quarter of fiscal 2023 net sales of $989.9 million. The increase compared to prior year quarter was the result of a 9% increase in price/mix, partially offset by an 8% decrease in organic growth. The sequential decrease was due to a 10% decrease in organic growth, partially offset by a 2% increase in price/mix.
Net earnings attributable to EnerSys stockholders (“Net earnings”) for the first quarter of fiscal 2024 was $66.8 million, or $1.60 per diluted share, which included an unfavorable highlighted net of tax impact of $11.8 million, or $0.29 per diluted share, from highlighted items described in further detail in the tables shown below, reconciling non-GAAP adjusted financial measures to reported amounts.
Net earnings for the first quarter of fiscal 2023 was $31.0 million, or $0.75 per diluted share, which included an unfavorable highlighted net of tax impact of $16.5 million, or $0.40 per diluted share from highlighted items described in further detail in the tables shown below, reconciling non-GAAP adjusted financial measures to reported amounts.
Excluding these highlighted items, adjusted Net earnings per diluted share for the first quarter of fiscal 2024, on a non-GAAP basis, were $1.89, compared to the guidance of $1.77 to $1.87 per diluted share for the first quarter given by the Company on May 24, 2023. These earnings compare to the prior year first quarter adjusted Net earnings of $1.15 per diluted share. Please refer to the section included herein under the heading “Reconciliations of GAAP to Non-GAAP Financial Measures” for a discussion of the Company’s use of non-GAAP adjusted financial information, which includes tables reconciling GAAP and non-GAAP adjusted financial measures for the quarters ended July 2, 2023 and July 3, 2022.
In the first quarter of fiscal 2024 we introduced a new line of business, New Ventures, that includes energy storage and management systems for demand charge reduction, utility back-up power, and dynamic fast charging for electric vehicles. The financial results of the New Ventures segment includes start up operating expenses and is included in the Corporate and other line in our operating earnings.
Second Quarter 2024 Outlook
In the second quarter of fiscal 2024, we expect:
- Adjusted diluted earnings per share in the range of $1.77 to $1.87, inclusive of $0.42 to $0.52 from IRC 45X tax benefits. Excluding the IRA credits, this represents an increase of approximately 22% over the prior year, at the midpoint, reflecting stable demand trends and a healthy backlog. Note that the IRS has not yet issued additional clarification guidance related to section 45X which could materially increase or decrease the quantity of our U.S. produced batteries that qualify for this credit.
- Gross margin in the range of 25.0% to 27.0%, including 150bps to 250bps from IRA credits.
- For the full year of fiscal 2024, we expect capital expenditures to be approximately $120 million.
"While we are optimistic about the trajectory or our business and the supply chain environment is generally improving, we expect to continue to operate in a dynamic macro environment. We are managing our business to optimize opportunities while mitigating risk as we closely monitor headwinds including geopolitical tensions, higher interest rates and some persisting inflation," said Andrea Funk, EnerSys Chief Financial Officer.
Please refer to the section included herein under the heading “Reconciliations of GAAP to Non-GAAP Financial Measures” for a discussion of the Company’s use of non-GAAP adjusted financial information.
Conference Call and Webcast Details
The Company will host a conference call to discuss its first quarter 2024 financial results at 9:00 AM (EDT) Thursday, August 10, 2023. A live broadcast as well as a replay of the call can be accessed through the Investor Relations section of the company’s website at https://investor.enersys.com.
To join the live call, please register through the events section of our Investor Relations webpage at https://register.vevent.com/register/BI63a965adbeef4d0682e50d2698b481bd. A dial-in and unique PIN will be provided upon registration.
About EnerSys
EnerSys is the global leader in stored energy solutions for industrial applications, designs, manufactures and distributes energy systems solutions and motive power batteries, specialty batteries, battery chargers, power equipment, battery accessories and outdoor equipment enclosure solutions to customers worldwide. The company goes to market through four lines of business: Energy Systems, Motive Power, Specialty and New Ventures. Energy Systems, which combine power conversion, power distribution, energy storage, and enclosures, are used in the telecommunication, broadband, and utility industries, uninterruptible power supplies, and numerous applications requiring stored energy solutions. Motive power batteries and chargers are utilized in electric forklift trucks and other industrial electric powered vehicles. Specialty batteries are used in aerospace and defense applications, large over-the-road trucks, premium automotive, medical and security systems applications. New Ventures provides energy storage and management systems for various applications including demand charge reduction, utility back-up power, and dynamic fast charging for electric vehicles. EnerSys also provides aftermarket and customer support services to its customers in over 100 countries through its sales and manufacturing locations around the world. More information regarding EnerSys can be found at www.enersys.com.
Sustainability
Sustainability at EnerSys is about more than just the benefits and impacts of our products. Our commitment to sustainability encompasses many important environmental, social and governance issues. Sustainability is a fundamental part of how we manage our own operations. Minimizing our environmental footprint is a priority. Sustainability is our commitment to our employees, our customers and the communities we serve. Our products facilitate positive environmental, social and economic impacts around the world. To learn more visit: https://www.enersys.com/en/about-us/sustainability/.
Caution Concerning Forward-Looking Statements
This press release, and oral statements made regarding the subjects of this release, contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, or the Reform Act, which may include, but are not limited to, statements regarding EnerSys’ earnings estimates, intention to pay quarterly cash dividends, return capital to stockholders, plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts, including statements identified by words such as “believe,” “plan,” “seek,” “expect,” “intend,” “estimate,” “anticipate,” “will,” and similar expressions. All statements addressing operating performance, events, or developments that EnerSys expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings per share growth, order intake, backlog, payment of future cash dividends, commodity prices, execution of its stock buy back program, judicial or regulatory proceedings, and market share, as well as statements expressing optimism or pessimism about future operating results or benefits from its cash dividend, its stock buy back programs, application of Section 45X of the Internal Revenue Code, future responses to and effects of the COVID-19 pandemic, adverse developments with respect to the economic conditions in the U.S. in the markets in which we operate and other uncertainties, including the impact of supply chain disruptions, interest rate changes, inflationary pressures, geopolitical and other developments and labor shortages on the economic recovery and our business are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are based on management's current views and assumptions regarding future events and operating performance, and are inherently subject to significant business, economic, and competitive uncertainties and contingencies and changes in circumstances, many of which are beyond the Company’s control. The statements in this press release are made as of the date of this press release, even if subsequently made available by EnerSys on its website or otherwise. EnerSys does not undertake any obligation to update or revise these statements to reflect events or circumstances occurring after the date of this press release.
Although EnerSys does not make forward-looking statements unless it believes it has a reasonable basis for doing so, EnerSys cannot guarantee their accuracy. The foregoing factors, among others, could cause actual results to differ materially from those described in these forward-looking statements. For a list of other factors which could affect EnerSys’ results, including earnings estimates, see EnerSys’ filings with the Securities and Exchange Commission, including “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations,” and “Forward-Looking Statements,” set forth in EnerSys’ Annual Report on Form 10-K for the fiscal year ended March 31, 2023. No undue reliance should be placed on any forward-looking statements.
EnerSys Consolidated Condensed Statements of Income (Unaudited) (In millions, except share and per share data) | |||||
Quarter ended | |||||
July 2, 2023 | July 3, 2022 | ||||
Net sales | $ | 908.6 | $ | 899.0 | |
Gross profit | 240.3 | 185.5 | |||
Operating expenses | 144.6 | 127.1 | |||
Restructuring and other exit charges | 6.3 | 8.3 | |||
Operating earnings | 89.4 | 50.1 | |||
Earnings before income taxes | 73.5 | 36.8 | |||
Income tax expense | 6.7 | 5.8 | |||
Net earnings attributable to EnerSys stockholders | $ | 66.8 | $ | 31.0 | |
Net reported earnings per common share attributable to EnerSys stockholders: | |||||
Basic | $ | 1.63 | $ | 0.76 | |
Diluted | $ | 1.60 | $ | 0.75 | |
Dividends per common share | $ | 0.175 | $ | 0.175 | |
Weighted-average number of common shares used in reported earnings per share calculations: | |||||
Basic | 40,937,334 | 40,786,336 | |||
Diluted | 41,698,324 | 41,352,646 | |||
EnerSys Consolidated Condensed Balance Sheets (Unaudited) (In Thousands, Except Share and Per Share Data) | ||||||||
July 2, 2023 | March 31, 2023 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 258,342 | $ | 346,665 | ||||
Accounts receivable, net of allowance for doubtful accounts: July 2, 2023 - $9,033; March 31, 2023 - $8,775 | 566,498 | 637,817 | ||||||
Inventories, net | 809,402 | 797,798 | ||||||
Prepaid and other current assets | 118,804 | 113,601 | ||||||
Total current assets | 1,753,046 | 1,895,881 | ||||||
Property, plant, and equipment, net | 512,970 | 513,283 | ||||||
Goodwill | 688,442 | 676,715 | ||||||
Other intangible assets, net | 354,662 | 360,412 | ||||||
Deferred taxes | 49,153 | 49,152 | ||||||
Other assets | 122,704 | 121,231 | ||||||
Total assets | $ | 3,480,977 | $ | 3,616,674 | ||||
Liabilities and Equity | ||||||||
Current liabilities: | ||||||||
Short-term debt | $ | 30,962 | $ | 30,642 | ||||
Accounts payable | 343,336 | 378,641 | ||||||
Accrued expenses | 261,353 | 309,037 | ||||||
Total current liabilities | 635,651 | 718,320 | ||||||
Long-term debt, net of unamortized debt issuance costs | 907,768 | 1,041,989 | ||||||
Deferred taxes | 60,767 | 61,118 | ||||||
Other liabilities | 193,612 | 191,366 | ||||||
Total liabilities | 1,797,798 | 2,012,793 | ||||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Preferred Stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding at July 2, 2023 and at March 31, 2023 | — | — | ||||||
Common Stock, $0.01 par value per share, 135,000,000 shares authorized, 56,129,710 shares issued and 41,030,034 shares outstanding at July 2, 2023; 55,748,924 shares issued and 40,986,658 shares outstanding at March 31, 2023 | 565 | 560 | ||||||
Additional paid-in capital | 612,295 | 596,464 | ||||||
Treasury stock at cost, 15,099,676 shares held as of July 2, 2023 and 14,762,266 shares held as of March 31, 2023 | (740,742 | ) | (740,956 | ) | ||||
Retained earnings | 1,989,588 | 1,930,148 | ||||||
Contra equity - indemnification receivable | (2,463 | ) | (2,463 | ) | ||||
Accumulated other comprehensive loss | ||||||||
