BERN TWP., Pa. — Chasing inflation can be an arduous task. Just ask EnerSys.
The Bern Township maker of stored energy solutions for industrial applications reported record quarterly sales and order backlogs. Earnings, however, declined both quarterly and year-over-year due to the lag of price recapture versus increased costs from inflation and supply chain constraints.
Speaking to analysts on a web call, David Shaffer, president and chief executive officer, was optimistic about the future.
“Our backlog is healthy and insulates us to a certain extent,” he said. “Our telecom, broadband and defense markets tend to follow their own cycles independent of GDP.”
Wall Street must have picked up the positivity. EnerSys stock price was up nearly 8% in mid-morning trading.
Shaffer went on to outline EnerSys’ strategy to improve in the future, which is to focus on what the company can control. There are five points to the strategy, he explained: continue to execute pricing increases commensurate with cost increases; redesign products to adapt to component supply constraints; reduce costs through operating efficiencies; grow share profitably; and mitigate supply constraints.
“While pricing has not yet caught up with the persisting inflation endured this fiscal year,” Shaffer said, “we are pleased with the trajectory our teams are making to recapture our underlying financial potential.”
In a statement, Shaffer noted several key milestones in fiscal 2022, including the launch and UL safety listing of the company’s high-performance NexSys lithium iON batteries, which feature an integrated battery management system (BMS) that performs auto-diagnosis, voltage limitation, and communication of performance data.
EnerSys exceeded its capacity goal for Thin Plate Pure Lead (TPPL) batteries.
“Customer demand for this proprietary technology across all of our business segments continues to outpace our ability to supply,” Shaffer commented. “We expect to benefit further from the strength of this demand as we make progress toward increasing capacity by an additional $200 million in fiscal 2023.”
Shaffer also noted that EnerSys made significant progress on its ESG (energy, social and governance) goals, including several sustainability and environment updates that culminated in the publication of its first comprehensive sustainability report in April 2022.
Sustainability
EnerSys included a statement on sustainability in its news release announcing fiscal fourth quarter and full year results.
“Sustainability at EnerSys is about more than just the benefits and impacts of our products. Sustainability is a fundamental part of how we manage our own operations. Minimizing our environmental footprint is a priority. Sustainability is our commitment to our employees, our customers and the communities we serve.”
4Q fiscal 2022 results
“The March quarter marked a strong finish to a challenging year,” Shaffer said. “Demand across all segments continued to surge, with fourth quarter net sales of $907 million eclipsing $900 million for the first time in our company’s history and our backlog growing to $1.3 billion, breaking new records for the third consecutive quarter.”
The increase compared to the prior year quarter was the result of an 8% increase in organic volume. This resulted primarily from strong demand, the easing of the pandemic and a 6% increase in pricing, partially offset by a 2% decrease in foreign currency translation impact.
Net earnings for the fourth quarter of fiscal 2022 was $28.1 million, or $0.67 per diluted share, which included an unfavorable net of tax impact of $22.0 million, or $0.53 per diluted share. Adjusted net earnings per diluted share for the fourth quarter of fiscal 2022, on a non-GAAP (generally accepted accounting principles) basis, were $1.20, compared to the guidance of $1.11 to $1.21 per diluted share for the fourth quarter given by the company on February 9, 2022.
Fiscal-year 2022 results
Net sales for the 12 months of fiscal 2022 were $3.357.3 billion, an increase of 12.7% from the prior year net sales of $2.9779 billion. The increase was attributable to a 10% increase in organic volume resulting primarily from strong demand and a 3% increase in pricing.
Net earnings for fiscal 2022 were $143.9 million, or $3.36 per diluted share, which included an unfavorable net of tax impact of $47.1 million, or $1.11 per diluted share. Adjusted net earnings per diluted share for the 12 months of fiscal 2022, on a non-GAAP basis, were $4.47. This compares to the prior year adjusted net earnings of $4.49 per diluted share.
Business segments
The energy systems business segment had net sales of $1.537 billion in fiscal 2022 and an adjusted operating margin of 3.1%. Infrastructure spending and network upgrades are fueling growth. Energy systems has a record $740 million backlog.
Motive power recorded net sales of $1.361 billion in the fiscal year with an adjusted operating margin of 12.5%. Demand was driven by the economic recovery, electrification and automation.
The specialty business segment had sales of $459 million in fiscal 2022 and the adjusted operating margin was 9.9%. The segment showed strong momentum in aerospace and defense, but EnerSys reported that labor and supply shortages are pressuring margins.
1Q 2023 outlook
“As we enter fiscal 2023, we expect to face ongoing challenges with continued supply chain constraints and inflation exacerbated by the senseless conflict between Russia and Ukraine and the resurgence of COVID in China,” Shaffer said. “We remain focused on what is in our control, catching inflation with ongoing price increases, navigating supply disruptions, and improving manufacturing cost performance.
“We believe we are well positioned for accelerated growth once the current macro headwinds subside. We are committed to being good corporate citizens and delivering long-term value to our shareholders through profitable growth and a disciplined capital allocation strategy.
“We remain well-positioned to capitalize heavily on robust market demand in exciting end-markets, our strong order book, and price stickiness once the current macro environment normalizes, and we are tracking to our strategic plan.”
For the first quarter of fiscal 2023, the company said it expects adjusted diluted earnings per share in the range of $1.10 to $1.20, with pricing keeping pace with mounting inflation. Gross margin for the first quarter of fiscal 2023 is expected to be in the range of 21% – 23%. For the full year of fiscal 2023 the company expects capital expenditure to be approximately $100 million.
