EnerSys Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Business Performance: Q3 marked a return to growth with revenue up 5% year over year, adjusted EPS growth, free cash flow improvement, and gradual recovery in market demand. Execution of transformation initiatives was ongoing to optimize the business.
• Innovation and Products: Introduced software-driven energy management systems and cutting-edge products. Realized first revenue from fast charging storage system. Leveraged technology to develop new battery energy storage system for motive power customers. Previewed new solutions at trade shows. YIQ battery monitoring devices are now standard on all applicable Motive Power products sold in North America.
• Strategy and Execution: Proactively assessed tariff scenarios and refined supply chain strategies. Positioned well to support U.S. Government efforts in domestic supply chain for defense-related products. Missouri plant investments progressed, enhancing operational flexibility. Keith Fisher assumed leadership of Energy Systems business, committed to holding headcount efficiencies while the business picks up.
• Honors and Recognitions: Named to Newsweek's list of America's most responsible companies and received the 2025 Military Friendly Employee designation for the second year in a row

Segment Performance

• Energy Systems: Revenue increased 4% from the prior year to $389 million in the third quarter, primarily driven by increased volumes and partially offset by FX pressure. Adjusted operating earnings were $25 million, growing for the fourth consecutive quarter, with an adjusted operating margin of 6.5% which increased 270 basis points. Revenue was up approximately $7 million sequentially, marking the second consecutive increase.
• Motive Power: Revenue increased 1% to $359 million as positive price mix and volume offset foreign exchange headwinds. Motive Power reported strong adjusted operating earnings of $53 million, in line with the prior year, supported by ongoing OpEx discipline. Volume was temporarily impacted by a plant disruption at a large customer ship-to location in EMEA.
• Specialty: Revenue increased 17% from the prior year to $155 million, driven by a 21% positive impact from the Brentronics acquisition and a 2% increase in price mix, partially offset by a 6% decline in organic volumes. Adjusted operating earnings were $10 million, up approximately $2 million versus the prior year, with an adjusted operating margin of 6.2% which was up 50 basis points

Guidance

• Fourth Fiscal Quarter: Expected to be one of the strongest quarters on record, with net sales guidance of $960 million to $1 billion, up 8% at the midpoint compared to prior Q4, and adjusted diluted EPS of $2.75 to $2.85 per share, up 35% at the midpoint compared to prior Q4.
• Full Fiscal Year 2025: Revenue guidance revised to between $3.603 billion and $3.643 billion of net sales, up 1% at the midpoint versus fiscal year 2024. Adjusted diluted EPS guidance range raised to between $9.97 and $10.07 per share, up 20% at the midpoint compared to fiscal year 2024

Risks

• Macro-economic uncertainty, particularly in the EMEA region.
• Evolving policy landscape in the U.S.带来的不确定性.
• Potential cost increases due to tariff and other trade policy changes.
• Supply chain risks such as issues in China, Europe, etc.

Q: Hi. Good morning. Thanks. Hey, good morning. Thanks for taking my questions. I think that I'm just being dense here, but I'm we're at the end of the call, and I still don't really understand something. So we're lowering the sales outlook by $100 million and we're you're I'm hearing that the, you know, the reasons are the slower than anticipated recovery in communications and transportation markets. And there was an issue, I know, with a major customer and motive but then also the outlook includes improving communication markets and improving transportation. So can you just, you know, talk about why, you know, the like, rank order, the reasons why sales or expectations down $100 million and talk about, you know, did some of that revenue that you lost because of the customer sheet, does that get pushed from the third quarter to the fourth quarter?

A: Sure. I'll be happy to take that, Brian, if it helps. And as you know, the number that you're quoting on revenue, of course, for the full year includes both the Q3 and Q4. And our Q3 revenue obviously was below the low end of our guide that, you know, I should point out. If it wasn't for FX, it would have been at the low end of our range, but still somewhat of a disappointment while EPS, you know, I'd say pull out the impact of IRA was right in line with where we had expected that it would be. So as we look at that going forward, we're trending off the fact that in Q3, comps didn't come back as quickly as we thought, trends didn't come back as quickly as we thought. We are seeing progress on both of those. As we mentioned, Brentronics was an overbeat. Motive Power some of them missed in Q3, I'd say probably just under $10 million was due to that customer fire that would have put us, you know, again, closer to our midpoint. We won't get a huge surge in Q4. They were at full capacity before they had a fire. They're back at full capacity now, so we probably won't get a catch-up on that. Until they have their scheduled shutdowns next year is when they'll probably be able to get ahead a little bit. That happened in October, so we had a full quarter impact. And, you know, again, there's just a general little bit of reticence on spending because of some uncertainty with the administration. You know, so that's kind of tampering things a little bit, and I'd say that drove some of the Q3 miss and our expectations for Q4 as well. As we said, we built a little hesitation in there. The trajectory is good. But there's going to be a little bit of slowness mostly because of that. And I think we've demonstrated that we manage the business well even when we don't have the revenue we thought we would that we're able to manage our expenses and hit these EPS targets. And based on that, both revenue and EPS, we narrowed the ranges with more confidence in what we expect to be able to deliver in the fourth quarter. Does that help? And, again, I mentioned that commodity hedge item. Yeah. I think if you pull that commodity hedge timing out, that's just at $0.16. Don't even look at, you know, our EBITDA excluding IRA. If you look at Q2 sequential changes, Q1 to Q2 up 10%, Q2 to Q3, up 12%, Q3 to Q4, probably up 12% to 13% again. So if you pull out the IRA noise and you pull out, you know, you pull out that one-time item that we had that we know won't repeat again because we capitalized our items, our cost of sales items, and we expense them a quarter later. It's really a nice steady trajectory.