EnerSys (ENS) Q3 2026 Earnings Call Transcript
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Overview
The earnings call reveals strong financial performance with significant growth in adjusted operating earnings, EBITDA, and free cash flow. While there are concerns about margins and lithium battery product timelines, management's optimism about future demand and strategic initiatives like the lithium project and data center growth provide a positive outlook. The market cap suggests a moderate reaction, leading to a predicted stock price increase of 2% to 8% over the next two weeks.
Key Financial Performance
Adjusted Diluted EPS $1.84, up 50% year-over-year. This increase was driven by favorable product mix, pricing discipline, and cost improvement efforts.
Net Sales $919 million, up 1% year-over-year. Growth was driven by a 3% benefit from price/mix and a 2% benefit from foreign currency translation, partially offset by a 4% decrease in organic volumes.
Adjusted Operating Earnings $142 million, up 34% year-over-year (excluding 45X benefits). This growth was attributed to favorable price/mix, cost improvement efforts, and restructuring savings.
Adjusted EBITDA $125 million, up 30% year-over-year (excluding 45X benefits). Growth was driven by operational efficiencies and cost management.
Free Cash Flow $171 million, an increase of $114 million year-over-year. This was supported by expanded receivable purchasing agreements and improved working capital efficiency.
Energy Systems Revenue $400 million, up 3% year-over-year. Growth was driven by strong price/mix and positive FX impact, despite softer volumes.
Motive Power Revenue $352 million, down 2% year-over-year. Decline was due to ongoing market softness, partially offset by FX tailwinds and favorable price/mix.
Specialty Revenue $168 million, up 8% year-over-year. Growth was driven by price/mix benefits, organic volume increases, FX tailwinds, and contributions from the Rebel acquisition.
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Operating Highlights
New product development pipeline: Momentum in new product development pipeline, focusing on battery energy storage systems, next-gen power electronics, TPPL and lithium solutions with embedded software. Enhanced collaboration between engineering teams and business lines to accelerate innovation.
Lithium cell factory: Progress in aligning planned lithium cell factory with administration priorities. Updated plan with the Department of Energy is close to finalization.
Data center market: Q3 sales up 28% year-over-year. Market remains in early stages of a multiyear growth cycle driven by AI workloads and energy resilience needs.
Defense sector: Increase in global defense budgets and demand for next-gen power technologies for tactical and mobile applications, including military drones.
Cost improvement efforts: Achieved adjusted operating earnings up 34% and adjusted EBITDA up 30% year-over-year, driven by favorable product mix, pricing discipline, and cost improvement efforts.
Closure of Monterrey battery plant: Manufacturing transitioned to Richmond, Kentucky facility one month earlier than planned. Benefits expected mid-fiscal '27.
Reduction in force actions: Actions announced in July are largely complete, with savings preserved through disciplined cost management.
Energized strategic framework: Focus on optimizing core operations, invigorating operating model, and accelerating growth. Realignment savings captured as planned.
Supply chain management: Proactive actions and pricing strategies offset tariff impacts, maintaining stable exposure at 22% of U.S. sourcing.
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Risk or Challenges
Motive Power & Transportation softness: Near-term softness persists in Motive Power & Transportation, with ongoing market challenges and slow recovery expected into mid-fiscal '27. Battery orders were up only 1% sequentially, indicating continued slowness.
Tariff exposure: The company faces a stable tariff exposure of around $70 million annualized for fiscal '26, with 22% of U.S. sourcing impacted. Policy shifts could further affect the bottom line.
Deferred investments in trucking and logistics: Class 8 trucking remains at the bottom of the cycle, with fleets aging and investment being deferred. This creates pent-up demand but also delays revenue realization.
Geopolitical uncertainties: Heightened geopolitical uncertainties are impacting global defense budgets and demand for next-gen power technologies, which could affect operations and supply chains.
Customer buying patterns: Dynamic macroeconomic conditions are influencing customer buying patterns, leading to deferred capital expenditures and slower order cycles in some segments.
Monterrey plant closure: The closure of the Monterrey battery plant and transition to the Richmond, Kentucky facility could pose short-term operational disruptions until savings are realized mid-fiscal '27.
Supply chain risks: The company continues to manage supply chain risks, including tariffs and sourcing challenges, which could impact operational efficiency and costs.
Class 8 OEM softness: Ongoing softness in Class 8 OEM markets is affecting Specialty segment growth, despite strength in other areas like A&D and transportation aftermarket.
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Guidance & Outlook
Revenue Expectations: For the fourth quarter of fiscal 2026, net sales are expected to range between $960 million to $1 billion.
Earnings Per Share (EPS) Projections: Adjusted diluted EPS for Q4 fiscal 2026 is projected to be between $2.95 to $3.05 per share, including $37 million to $42 million of 45X benefits. Excluding 45X, adjusted diluted EPS is expected to range from $1.91 to $2.01 per share, reflecting a 10% year-on-year increase at the midpoint.
Capital Expenditures: CapEx for the full fiscal year 2026 is expected to remain approximately $80 million.
Market Trends and Segment Performance: Data center business is expected to remain strong, driven by AI workload expansion and energy resilience needs. Communications sector shows steady improvement, while Motive Power & Transportation volumes are anticipated to remain soft into mid-fiscal 2027. Defense budgets and demand for next-gen power technologies are expected to remain robust.
Operational Efficiencies: Operational efficiencies and cost-saving measures are expected to continue driving margin expansion and long-term growth.
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Shareholder Return Plan
Dividends Paid: EnerSys returned $9.6 million in dividends to shareholders during the third quarter.
Share Repurchases: EnerSys repurchased 672,000 shares for $84 million at an average price of approximately $128 per share during the third quarter.
Buyback Authorization: EnerSys has approximately $931 million remaining in its buyback authorization as of February 3.
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Key Q&A
Q:Can you talk about your own data center pipeline and how you think about that scaling in the quarters ahead?
A:Shawn O'Connell highlighted that EnerSys has over 50% market share in lead acid batteries for data centers in the U.S. and globally. They are seeing growing demand for higher density products, and their TPPL products are performing well. However, they currently have 0% market share in lithium battery products for data centers, which they see as a massive growth opportunity. The company is working on releasing a lithium battery product but is not disclosing timelines yet.
Q:Can you provide more context around the normalized margin improvement in Energy Systems for Q4?
A:Andrea Funk explained that Energy Systems is project-oriented, leading to variability in margins. Some pull-ins into Q2 and a customer order push into Q4 affected Q3 volumes and margins. Normalizing for these factors, margins are expected to improve but may dip slightly below 10% in Q4 while continuing the improvement trajectory.
Q:When do you think the destocking in Motive Power ends, and when might you see an inflection in Motive order rates?
A:Shawn O'Connell noted that leading indicators for forklift manufacturer OEMs have been tough to gauge due to factors like tariffs and interest rates. However, there is pent-up demand, evidenced by a record 40% increase in December truck orders in the Americas. The lag time between truck orders and battery orders is typically a couple of quarters, and the company is optimistic about future demand.
Q:Can you share any updates on the lithium battery strategy and when we might see a final decision?
A:Shawn O'Connell stated that discussions with the Department of Energy and the administration are progressing positively. The grant for their lithium battery project remains intact, and the company is optimistic about a favorable outcome. They are in the final stages of discussions but do not have concrete information to share yet.
Q:What is happening in the telecom and broadband end markets, and what is the outlook?
A:Shawn O'Connell and Andrea Funk explained that telecom and broadband markets are experiencing year-end choppiness and project staging issues. However, demand signals are positive, with power utility applications up 15%. The communications business is expected to grow mid-single digits in fiscal '26, and data centers are projected to grow high teens year-on-year.
Q:How should we think about the rollout of the lithium UPS solution later this year?
A:Shawn O'Connell explained that the rollout will involve trials with pre-agreed customers, which will take about six months. After trials, the product will enter the project queue, but a rapid ramp-up is not expected. The market is not crowded, with only 1-2 other credible lithium providers, and EnerSys has strong customer pull-through.
Q:What drove the price mix in Motive Power, and was any of it related to tariff pass-through?
A:Andrea Funk noted that the price mix was driven by softness in the flooded battery business, which benefited the mix. Tariff pass-through contributed but at a lower margin. Restructuring efforts and maintenance-free solutions also supported the margin improvement.
Q:Review of Unclear Management Responses
A:Management avoided providing specific timelines for the release of their lithium battery product for data centers, citing a preference to announce after achieving milestones. Additionally, while they expressed optimism about the lithium battery grant discussions with the Department of Energy, they did not provide concrete details or timelines for a final decision.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI development
AI workload
AOE digit
AOE year
CEO President
Class trucking
Communications reminder
Corporate Communications
Day progress
Energy Progress
Form VP
Kentucky facility
Power Transportation
Progress outcome
Relations Corporate
Slide ex
Slide framework
Slide model
Systems digit
capability
center excellence
core
cost improvement
demand trend
digit AOE
energy storage
gen power
industry forklift
market term
need energy
product development
project
resilience
saving
software
team
term softness
ENS Transcript
EnerSys (ENS) Q3 2026 Earnings Call Transcript
Positive2-5
The earnings call reveals strong financial performance with significant growth in adjusted operating earnings, EBITDA, and free cash flow. While there are concerns about margins and lithium battery product timelines, management's optimism about future demand and strategic initiatives like the lithium project and data center growth provide a positive outlook. The market cap suggests a moderate reaction, leading to a predicted stock price increase of 2% to 8% over the next two weeks.
EnerSys (ENS) Q2 2026 Earnings Call Transcript
Positive11-6
The earnings call summary and Q&A reveal strong financial metrics and optimistic guidance, particularly in data center growth, margin improvements, and a $1 billion share repurchase plan. Despite elevated lithium costs and government-related uncertainties, the company is mitigating risks well. The market cap of $4.17 billion suggests a moderate reaction, leading to a positive stock price movement prediction of 2% to 8% over the next two weeks.
EnerSys (ENS) Q1 2026 Earnings Call Transcript
Positive8-8
The earnings call reveals strong financial performance in Energy Systems and Specialty Revenue, alongside positive guidance for margin improvements and strategic cost savings. Despite some challenges in Motive Power and unclear full-year guidance, management's confidence, evidenced by the $1 billion buyback program and strategic growth initiatives, indicates a positive outlook. The market cap suggests moderate stock reaction, leading to a 'Positive' prediction of 2% to 8% stock price increase.
EnerSys (NYSE:ENS) Q4 2025 Earnings Call Transcript
Positive5-23
The earnings call indicates strong financial performance with revenue and earnings growth, improved margins, and optimistic guidance. Despite some concerns about tariffs and market dynamics, management is confident in their strategies. Shareholder returns are positive with dividends and share repurchases, and the acquisition of Brentronics is contributing positively. The Q&A reveals management's cautious approach to guidance due to tariff uncertainties, but overall sentiment remains positive. Given the company's market cap, the stock price is likely to experience a positive movement, estimated between 2% to 8% over the next two weeks.
ENS Slides
ENS Report
Frequently Asked Questions
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