A month has gone by since the last earnings report for EnerSys (ENS). Shares have lost about 14.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

EnerSys Q1 Earnings Surpass Estimates, Sales Lag

EnerSys reported mixed results for first-quarter fiscal 2022 (ended Jul 4, 2021). Its earnings surpassed estimates by 4.17%, while sales lagged the same by 0.03%.

The company’s earnings in the fiscal first quarter were $1.25 per share, surpassing the Zacks Consensus Estimate of $1.20. The quarterly earnings grew 35.9% from the year-ago quarter’s figure of 92 cents per share on sales improvement, partially offset by an increase in costs and expenses.

Revenue Details

In the reported quarter, EnerSys’ net sales amounted to $814.9 million, up 15.6% year over year. The results benefitted from 12% growth in volumes and a 4% positive impact from foreign currency movements.

The company noted that the top line benefitted from strength across all the segments. Backlog, exiting the reported quarter, was at $850 million.

However, EnerSys’ top line lagged the Zacks Consensus Estimate of $815 million.

Geographically, the company’s net sales increased 13% year over year to $557 million in the Americas, while the metric witnessed growth of 27% to $201 million in Europe, Middle East and Africa. Sales in Asia were $57 million, reflecting an increase of 3% from the year-ago quarter.

The company reports revenues under three segments. A brief discussion of the quarterly results is provided below:

Energy Systems’ sales were $371.2 million, up 5% year over year. Volume was up 3% and pricing had an adverse impact of 1%. Foreign currency translations benefitted by 3%.

The Motive Power segment generated revenues of $336.1 million, increasing 27.9% year over year. The results were driven by 22% growth in volumes, 1% positive contribution from pricing and 5% of forex tailwinds.

Specialty’s sales were $107.6 million, up 21.3% year over year. Volumes grew 18% in the quarter, while pricing and foreign currency translations had positive impacts of 1% and 2%, respectively.

Margin Profile

In the reported quarter, EnerSys’ cost of sales increased 17.3% year over year to $621.7 million. Cost of sales was 76.3% of the quarter’s net sales. Gross profit in the quarter grew 10.4% year over year to $193.2 million, while gross margin fell 110 basis points (bps) year over year to 23.7%.

Operating expenses increased 3.4% year over year to $124.5 million. It represented 15.3% of net sales in the reported quarter versus 17.1% in the year-ago quarter. Adjusted operating earnings were $75.1 million, reflecting year-over-year growth of 22.7%. Margin increased 50 bps year over year to 9.2%.

The company’s performance in the quarter suffered from shortages in transportation, raw material and labor. Measures to deal with these issues were taken.

Balance Sheet & Cash Flow

Exiting the first quarter of fiscal 2022, EnerSys had cash and cash equivalents of $406.2 million, down 10.1% from $451.8 million recorded in the last reported quarter. Long-term debt increased 5.2% sequentially to $1,020.4 million.

In the reported quarter, the company repaid a term loan of $11.4 million and revolving credit borrowings of $5.7 million. However, proceeds for revolving credit borrowings were $65.7 million in the quarter.

The company used net cash of $48.1 million for its operating activities in the quarter against net cash generation of $116.6 million in the year-ago quarter. Capital expenditure totaled $16.4 million compared with $26.3 million in the prior-year quarter.

EnerSys rewarded shareholders with a dividend payout of $7.4 million in first-quarter fiscal 2022. Shares repurchased amounted to $31.5 million.

Outlook

Though supply-chain constraints will be headwinds in the near term, EnerSys anticipates gaining from the healthy demand for products across all businesses.

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 -18.04% due to these changes.

VGM Scores

At this time, EnerSys has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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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