Press release·03/02/2025 20:15:57

Overview

EnerSys is a world leader in stored energy solutions for industrial applications. The company designs, manufactures, and distributes energy systems, motive power batteries, specialty batteries, and related products to customers worldwide. EnerSys operates in four main business segments: Energy Systems, Motive Power, Specialty, and New Ventures.

In July 2024, EnerSys completed the acquisition of Bren-Tronics Defense LLC, a leading manufacturer of portable power solutions for military and defense applications. This business is reported within the Specialty segment.

Financial Performance

EnerSys reported mixed financial results in the third quarter and first nine months of fiscal year 2025 compared to the prior year periods.

Net sales increased 5.2% in the third quarter, driven by a 2% increase in organic volume, 2% increase in pricing, and 3% increase from acquisitions, partially offset by a 2% decrease from foreign currency translation. However, net sales decreased 1.1% in the first nine months, due to a 1% decrease in organic volume, 1% decrease in pricing, and 1% decrease from foreign currency translation, partially offset by a 2% increase from acquisitions.

Gross profit increased 19.9% in the third quarter and 8.3% in the first nine months. Gross margin improved 400 basis points in the quarter and 250 basis points in the nine months, reflecting greater impact of IRA benefits, improved product mix, and the accretive impact of the Bren-Tronics acquisition.

Operating expenses as a percentage of sales increased 30 basis points in the quarter and 70 basis points in the nine months, primarily due to the Bren-Tronics acquisition, increased investment in new initiatives, and other payroll costs, partially offset by cost savings in the Energy Systems segment.

Operating earnings increased 54.1% in the third quarter and 23.2% in the first nine months, with operating margins improving 500 basis points and 250 basis points, respectively. The improvements were driven by the higher gross margins, partially offset by the increase in operating expenses.

Interest expense increased 26.8% in the third quarter due to higher borrowing levels, but decreased 2.2% in the first nine months as the impact of higher rates was offset by lower average debt levels.

The effective tax rate increased to 9.4% in the third quarter from 3.2% in the prior year period, primarily due to the interim period allocation of annual tax, impact of the global minimum tax (Pillar 2), and mix of earnings across tax jurisdictions. For the first nine months, the effective tax rate increased to 7.9% from 7.7% in the prior year period, also due to Pillar 2 and earnings mix, partially offset by a discrete tax benefit.

As a result, earnings before income taxes increased 61.1% in the third quarter and 28.6% in the first nine months. Net income increased accordingly, though the tax rate increase dampened the bottom-line growth in the third quarter.

Segment Performance

Energy Systems:

• Third quarter sales increased 4.2%, driven by a 6% increase in organic volume, partially offset by 2% FX headwind. Nine-month sales decreased 7.2%, due to 5% lower organic volume, 1% lower pricing, and 1% FX headwind.
• Operating earnings margin improved 270 basis points in the quarter and 40 basis points in the nine months, benefiting from higher volumes and lower operating expenses.

Motive Power:

• Third quarter sales increased 1.0%, with 1% higher organic volume and 2% higher pricing, partially offset by 2% FX headwind. Nine-month sales increased 2.9%, driven by 4% higher organic volume, partially offset by 1% FX headwind.
• Operating earnings margin decreased 10 basis points in the quarter but increased 50 basis points in the nine months, as volume growth and favorable commodity costs offset FX impacts and higher operating expenses.

Specialty:

• Third quarter sales increased 17.0%, with 21% from acquisitions and 2% higher pricing, partially offset by 6% lower organic volume. Nine-month sales increased 6.8%, with 11% from acquisitions, offset by 4% lower organic volume.
• Operating earnings margin improved 50 basis points in the quarter but declined 70 basis points in the nine months, as the accretive Bren-Tronics acquisition was offset by lower volumes from transportation OEM customers.

Liquidity and Capital Resources

As of December 29, 2024, EnerSys had $463 million in cash and cash equivalents and $375 million in available and undrawn committed credit lines, providing substantial liquidity.

During fiscal 2023 and 2024, the company amended its credit facility several times, extending the maturity to September 2026, increasing the revolving credit facility, and transitioning from LIBOR to SOFR. In January 2024, the company also issued $300 million in 6.625% Senior Notes due 2032.

Operating cash flow was $125.1 million in the first nine months of fiscal 2025, down from $320.2 million in the prior year period, primarily due to changes in working capital. Investing activities used $307.5 million, mainly for the Bren-Tronics acquisition and capital expenditures. Financing activities provided $328.9 million, including net borrowings, stock repurchases, dividends, and proceeds from stock options.

EnerSys remains in compliance with all debt covenants and believes it has sufficient liquidity and capital resources to fund organic growth, pursue acquisitions, and return capital to shareholders.

Commodity and Currency Risks

EnerSys is exposed to volatility in commodity prices, particularly lead, as well as fluctuations in foreign currency exchange rates, especially the Euro.

The company uses forward contracts to hedge against changes in lead prices, with 8% of its fiscal 2025 lead requirements covered by such contracts at an average cost of $0.92 per pound. A 10% increase in lead costs would have increased cost of goods sold by $53 million in the first nine months.

To manage foreign currency risk, EnerSys utilizes forward contracts and cross-currency interest rate swaps. The majority of these hedges settle within one year. Currency translation had a $16.6 million negative impact on the cash balance in the first nine months of fiscal 2025.

Outlook and Risks

Looking ahead, EnerSys faces a mixed economic environment, with impacts from tariffs, interest rate hikes, and geopolitical tensions. The supply chain has been stabilizing, but some challenges and elevated costs remain.

Demand trends are varied, with the Motive Power segment remaining healthy, the Communication market seeing cyclical capex pauses impacting Energy Systems, and the Class 8 truck market softening for the Specialty segment.

Key risks facing the company include quality issues, integration challenges from acquisitions, commodity and currency volatility, customer credit risk, and the potential impact of natural disasters or pandemics. The company also faces uncertainty around the implementation of the global minimum tax (Pillar 2).

Despite these headwinds, EnerSys believes its strong capital structure, liquidity position, and diversified business model position it well to navigate the current environment, fund growth initiatives, and continue returning capital to shareholders.