EnerSys (ENS) Earnings

Management highlights

### Overall Financial Performance - The company achieved full year 2026 record sales, adjusted gross profit, adjusted operating earnings, and adjusted diluted EPS (both including and excluding 45x tax benefits), despite softer demand in electric forklift and transportation markets, demonstrating the strength of its diversified business and energized strategic framework. - Q4 FY2026 delivered record adjusted EPS (including and excluding 45x), the second highest quarterly revenue in company history, and strong free cash flow, driven by favorable price mix, ongoing OpEx discipline, and accelerating share buybacks. ### Strategic Framework Execution - **Manufacturing footprint optimization**: Completed the Monterrey, Mexico plant closure, which is expected to yield $19 million in savings in FY2027, with early 45x benefits already realized in Q4. Announced closure of the Tijuana, Mexico facility, with production shifted to Springfield, Missouri, expected to generate ~$20 million in incremental 45x benefits starting in FY2028. These projects optimize footprint, maximize 45x tax benefits, support transition to higher-margin solutions, and mitigate tariff risk. - **Operating model improvement**: Centers of excellence delivered early working capital improvements via better supply chain and purchasing collaboration, contributing to strong full year free cash flow. - **New product development**: Lithium data center solutions and battery energy storage solutions (BESS) for warehouse operators both advanced to customer commissioning in Q4, with meaningful revenue growth expected to start in FY2028. - **Lithium cell factory rescoping**: The Greenville, South Carolina lithium cell factory strategy was updated to focus on domestic, TUC-compliant supply for aerospace and defense (A&D) customers. The revised plan uses proven commercial cell technology to derisk the program, reduce complexity, and speed up production timeline. The company is in the final stages of a Department of Energy grant process for the revised project. ### End Market Demand Trends - **Encouraged momentum**: Q4 posted a book-to-bill ratio of 1.1x, the highest in nearly 4 years, with all segments seeing orders outpace revenue. Orders for Motive Power and Transportation improved sequentially and YoY, with continued early recovery signs. - **Strong growth end markets**: Communications saw record broadband power supply shipments driven by DOCSIS 4.0 network buildouts; data centers saw high teens YoY growth in FY2026 for lead acid solutions, supported by AI-driven infrastructure expansion; A&D saw particularly strong order growth in munitions and space, driven by rising global defense budgets. - **Soft but improving end markets**: Forklift and transportation markets are seeing soft volumes but improving order trends, with a return to growth expected by the end of FY2027 driven by pent-up deferred demand. ### Balance Sheet & Capital Allocation - Net debt decreased by ~$100 million since the end of FY2025 to $684 million, with a leverage ratio of 1.1x EBITDA, well below the 2x-3x target range. As of March 31, 2026, the company held $440 million in cash and cash equivalents. - Full year FY2026 capital expenditure totaled $80 million. $49 million was returned to shareholders via dividends and share buybacks in FY2026, with $876 million remaining in authorized buyback capacity as of May 20, 2026.

Guidance

- For Q1 FY2027, the company expects net sales in the range of $915 million to $955 million. Adjusted diluted EPS is expected to be $2.80 to $2.90 per share (including $42 million to $47 million in 45x benefits), with adjusted diluted EPS excluding 45x expected to be $1.61 to $1.71 per share. - Full year FY2027 adjusted operating earnings growth (excluding 45x benefits) is expected to outpace revenue growth, supported by ongoing OpEx discipline, sustained strong price mix, and improving end market conditions. - Full year FY2027 capital expenditure is expected to be approximately $70 million, down from $80 million in FY2026, as heavy TPPL capacity investments are complete and the company will focus on selective high-return projects. - The full year FY2027 adjusted effective tax rate (before 45x benefits) is expected to be in the range of 21.5% to 23.5%.

Segment performance

### Energy Systems Q4 FY2026 revenue was $426 million, a 7% increase year-over-year (YoY), representing 43.1% of total consolidated Q4 revenue. Adjusted operating earnings increased 23% YoY to $42 million, with an adjusted operating margin of 10% (up 130 basis points YoY), driven by strong price mix, positive foreign exchange (FX) impact, volume growth in Power Electronics, and restructuring OpEx savings. ### Motive Power Q4 FY2026 revenue was $370 million, a 6% decrease YoY, representing 37.4% of total consolidated Q4 revenue. Adjusted operating earnings were $53 million, down 21% YoY, with an adjusted operating margin of 14.2% (down 280 basis points YoY). Lower volumes from ongoing market softness offset FX tailwinds and favorable price mix, with OpEx savings offset by lost leverage from lower volume and higher freight/tariff costs. Maintenance free products accounted for 30.4% of segment revenue, up from 29.3% in Q4 FY2025. ### Specialty Q4 FY2026 revenue was $102 million, an 8% increase YoY, representing 10.3% of total consolidated Q4 revenue. Adjusted operating earnings were $10 million, up 20% YoY, with an adjusted operating margin of 9.4% (up 90 basis points YoY). Growth was driven by favorable price mix in Aerospace & Defense (A&D), early contributions from the Rebel acquisition, and FX tailwinds, partially offset by lower transportation volumes. While transportation sales were down high single digits YoY, orders rose over 30% YoY signaling early demand recovery.

Risks & headwinds

- Geopolitical disruption from the ongoing Middle East conflict has created direct and indirect impacts, including elevated freight and inflationary costs that created temporary pressure in Q4 FY2026, which will persist as long as the conflict continues. While management is confident it can mitigate these costs, there may be temporary margin pressure until higher costs can be passed through to customers. - Heightened economic uncertainty from geopolitical and macroeconomic volatility has negatively impacted customer buying patterns, particularly in cyclical Motive Power and Transportation segments, delaying customer purchases and creating near-term volume pressure. - Tariff policy uncertainty remains a headwind: total annual tariff exposure is ~$70 million before mitigations, and new Section 22 tariffs announced in February are expected to have a roughly equal impact to the reversed IEPA tariffs. While the company has filed for IEPA tariff reimbursement and began receiving refunds in May 2026, refunds are not included in current guidance. - Project-based end markets (including Energy Systems and A&D) experience inherent quarterly volatility in revenue and earnings, leading to non-linear growth trajectories.

Analyst Q&A

• Q: Despite record XM shipments and strong data center demand, Energy Systems volumes were flat YoY in Q4. What offset this strength, and what is the growth profile for FY27? /

  A: Energy Systems is an inherently project-based business, so growth is not linear quarter to quarter. Q4 FY2025 had very strong data center volumes and extra pull-in of orders ahead of implemented tariffs, creating a tough YoY comparable. Full year FY2026 Energy Systems grew high single digits, and Q4 FY2026 orders were up 36% YoY, indicating strong underlying momentum. Management noted that the company’s ability to deliver record full-year earnings despite a volume decline in the large Motive Power segment is unprecedented and demonstrates the strength of the current diversified business model.

• Q: What does "customer commissioning" for new lithium products mean for commercial readiness, and when will meaningful revenue be realized? /

  A: Customer commissioning means finished products have been shipped to and deployed by customers, not just early-stage test samples. While the products are functional in customer sites, there is still substantial work to complete OEM partnerships, product validation for hyperscaler customers, and go-to-market handoffs. Meaningful revenue lift from these new lithium products is not expected until FY2028.

• Q: What is the current state of EnerSys' lithium initiatives, including the Greenville lithium plant? Where do cells for commercial lithium products currently come from, and when will that transition to the new plant? /

  A: EnerSys currently produces 9 lithium chemistries for A&D applications internally and buys cells for commercial lithium products (data center and warehouse BESS) from third-party global supply chains, which will continue for the foreseeable future. The Greenville plant is purpose-built for A&D applications, where customers will pay a premium for guaranteed domestic, secure supply, and the cells will be purpose-built for that market. Downstream use of Greenville cells for commercial applications is a future possibility, but not planned for the near term.

• Q: What demand trends are you seeing in A&D, and what is the outlook for FY27? /

  A: A&D revenue and orders are up mid-20% YoY and sequentially, with particularly strong growth in munitions and space, and a book-to-bill ratio of 1.22x. Growing backlog in munitions will increasingly translate to revenue in FY2027, with thermal battery ramping late in the year. Recent acquisitions are performing very well, delivering synergies across EMEA and the U.S., and robust demand is being seen across both U.S. and European military markets, driven by rising global defense budgets.