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Why Is EnerSys (ENS) Down 1.5% Since Last Earnings Report?

It has been about a month since the last earnings report for EnerSys (ENS). Shares have lost about 1.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is EnerSys due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

EnerSys Q4 Earnings Surpass Estimates, Revenues Miss

EnerSys reported mixed results for the fourth quarter of fiscal 2019 (ended Mar 31, 2019), wherein earnings beat estimates but revenues lagged the same.

The company’s adjusted earnings in the reported quarter were $1.43 per share, beating the Zacks Consensus Estimate of $1.42. Also, the bottom line increased 15.3% from the year-ago figure of $1.24.

For fiscal 2019, EnerSys anticipates adjusted earnings of $4.93 compared with the year-ago figure of $4.65.

Revenues

In the quarter, EnerSys’ net sales were $796.6 million, reflecting growth of 16.6% from the year-ago quarter. The improvement was driven by 20% positive impact of the Alpha acquisition and 1% benefit each from pricing and increase in organic volumes, partially offset by adverse forex woes of 5%. However, the top line lagged the Zacks Consensus Estimate of $816.1 million.

For fiscal 2019, the company generated net sales of $2,808 million, up 9% from the $2,581.8 million reported in fiscal 2018.

Sales generated from the reserve power product line  otalled $449 million, increasing 39% year over year while that from motive power declined 3.6% to $347 million.

The company reports net sales under three segments as discussed below:

Revenues from the Americas (representing roughly 63.7% of the quarter’s net sales) were $507.8 million, increasing 33.4% year over year. The improvement was driven by 36% increase from acquired assets and 1% rise from  otalled b pricing, partially offset by 2% adverse impact of forex woes and decline in organic volume.

Revenues from the Europe, Middle East and Africa (28.6%)  otalled $228 million, flat year over year. Adverse impact of 10% from  otalled ble movements in foreign currencies and 1% adverse impact from  otalled ble pricing was offset by 11% growth in organic volumes.

Revenues from the Asia (7.6%) were $61 million, down 19%. Decline in organic volume affected results by 14% and forex woes had an adverse 5% impact.

Margins Details

In the quarter under review, EnerSys’ cost of goods sold was $588.2 million. It represented 73.8% of net sales. Gross profit increased 20.8% year over year to $202.3 million, with margin increasing 90 basis points (bps) to 25.4%.

Operating expenses jumped 35.4% year over year to $133.6 million. It represented 16.8% of net sales. Operating income in the quarter decreased 48.3% to $35 million. Operating margin slipped 550 bps to 4.4%.

Balance Sheet and Cash Flow

Exiting fiscal 2019, EnerSys had cash and cash equivalents of $299.2 million, roughly 42.7% below $522.1 million at the end of the last fiscal.

In fiscal 2019, the company generated net cash of $197.9 million from operating activities compared with $211 million in fiscal 2018. Capital expenditure  otalled $70.4 million versus $69.8 million a year ago.

Concurrent with the earnings release, the company’s board of directors approved payment of a quarterly cash dividend of 17.5 cents per share to shareholders on record as of Jun 14, 2019. The payment will be made on Jun 28.

Outlook

For the first quarter of fiscal 2020 (ending June 2019), EnerSys anticipates adjusted earnings of $1.30-$1.34 per share.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -11.15% due to these changes.

VGM Scores

At this time, EnerSys has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise EnerSys has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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