Release Date: May 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- EnerSys (ENS, Financial) delivered strong adjusted earnings per share of $2.08 for the fourth quarter, at the high end of their guidance range.
- Revenue for the fourth quarter was $911 million, in line with expectations, supported by diversified end markets.
- EnerSys (ENS) achieved adjusted gross margin improvement and adjusted operating earnings growth versus the prior fourth quarter.
- The company saw healthy demand in most end markets, with overall company order rates up 4% year-over-year.
- EnerSys (ENS) made significant progress in strategic initiatives, including the development of a lithium ion cell gigafactory and the acquisition of Bren-Tronics.
Negative Points
- Revenue for the fiscal year 2024 was down 3% year-over-year, impacted by softness in telco broadband spending.
- Adjusted operating earnings for Energy Systems were down $12 million from the prior year, with adjusted operating margin decreasing by 180 basis points.
- Supply chain constraints continue to affect some material handling OEMs, leading to longer lead times for certain products.
- The company experienced a 6.9% decrease in volume for the fourth quarter, primarily due to temporary telecom broadband spending pauses.
- Adjusted operating margin for the fourth quarter, excluding IRA benefits, was 8%, down 110 basis points year-over-year.
Q & A Highlights
Q: Can you provide more details on the expected margin improvements in Energy Systems for fiscal year 2025?
A: Andrea J. Funk, Executive VP & CFO: The telco broadband pause significantly impacted us, with a $0.50 per share negative impact in Q4 alone. We've enacted $20 million in additional cost savings, aiming for 8% to 10% margins in a down-cycle and 12% to 15% in an up-cycle. We expect steady recovery throughout fiscal year 2025, with improvements in Q3 and Q4.
Q: Does the CapEx guidance for fiscal year 2025 include any material outlays for the lithium gigafactory?
A: David M. Shaffer, CEO, President & Director: No, it does not. We have made controlled investments, such as a $10 million land purchase in Greenville, South Carolina, and secured $200 million in grants. We aim to hit the ground running once DOE awards are announced in August.
Q: What are the opportunities for wallet share gain and content expansion in the data center build-out beyond battery supply?
A: David M. Shaffer, CEO, President & Director: Our key presence is in TPPL and traditional products, with commanding market share in North America and Western Europe. We are exploring product diversification and M&A opportunities to expand our offerings in the data center market.
Q: What are the puts and takes to get to the low end versus high end of revenue and EBITDA guidance for fiscal year 2025?
A: Andrea J. Funk, Executive VP & CFO: The range reflects uncertainty in telco broadband recovery. We expect ongoing softness but steady recovery throughout the year. Motive Power and Specialty markets remain healthy, with growth in lithium and Fast Charge and Storage revenue.
Q: How does the Bren-Tronics acquisition fit into EnerSys' strategic goals?
A: David M. Shaffer, CEO, President & Director: Bren-Tronics' focus on soldier powering and lithium 6T batteries aligns well with our strengths in vehicle and submarine power. The acquisition offers sales synergies and expands our product offerings in critical defense applications.
Q: What are your targeted steady-state growth and operating margin targets, with and without IRA credits?
A: David M. Shaffer, CEO, President & Director: Our baseline for normalcy is the revenue CAGR ranges laid out in our Investor Day model. We remain committed to our fiscal year 2027 operating margin target of 14% to 16%, with incremental margin improvements from various strategic initiatives.
Q: Can you provide an update on the state of the supply chain and any targeted raw material reductions?
A: David M. Shaffer, CEO, President & Director: Most supply chains have normalized, but some customers, especially in the forklift material handling sector, still face long lead times. Freight costs have improved, and commodity costs are generally down, with some fluctuations in specific materials like lead.
Q: How are you leveraging AI to drive productivity and cost savings?
A: Andrea J. Funk, Executive VP & CFO: We are exploring AI-driven productivity enhancements and restructuring contracts to improve our margin profile. These initiatives aim to sustain cost savings and improve margins throughout market cycles.
Q: What are the expected benefits from the Fast Charge and Storage systems?
A: Andrea J. Funk, Executive VP & CFO: We expect initial revenue from Fast Charge and Storage systems in fiscal year 2025, aligning with our strategic plan. These systems will support our customers' growing needs for automation, electrification, and decarbonization solutions.
Q: How do you plan to integrate Bren-Tronics into EnerSys?
A: David M. Shaffer, CEO, President & Director: We aim for a seamless integration, leveraging Bren-Tronics' engineering capabilities and aligning culturally. The acquisition will enhance our product offerings and provide opportunities for sales synergies in defense applications.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
