EnerSys Q2 FY2026 earnings call

• Second quarter results were strong with net sales up 8% year-over-year, earnings growth outpacing revenue driven by favorable price/mix. • Progress on EnerGize strategic framework includes nearing completion of reduction in force actions, launching 3 centers of excellence (lead-acid, power electronics, lithium), leveraging AI for increased efficiency, and reallocating resources to higher return opportunities. • Fully offset tariffs in the P&L through proactive supply chain actions and pricing strategies. • Published fiscal year 2025 sustainability report highlighting energy savings and commitment to sustainability. • Announced next Investor Day on June 11, 2026, in New York City.

In the second quarter, Energy Systems revenue increased 14% year-over-year to $435 million, with adjusted operating earnings up 38% to $34 million and an adjusted operating margin of 7.7%. Motive Power revenue decreased 2% year-over-year to $360 million, with adjusted operating earnings down $10 million to $48 million and an adjusted operating margin of 13.3%. Specialty revenue increased 16% year-over-year to $157 million, with adjusted operating earnings nearly doubling to $15 million and an adjusted operating margin of 9.2%. Energy Systems contributed 45.7% to total revenue, Motive Power contributed 37.8%, and Specialty contributed 16.5%.

• Third quarter net sales expected in the range of $920 million to $960 million. • Adjusted diluted EPS for third quarter expected to be $2.71 to $2.81 per share including $35 million to $40 million of 45X benefits, and $1.64 to $1.74 per share excluding 45X benefits. • Full fiscal 2026 CapEx expectation is approximately $80 million. • Expect to realize $30 million to $35 million of net savings in fiscal year '26 related to cost reduction initiatives. • Full year quantitative guidance paused due to dynamic macro environment, but reaffirm adjusted operating earnings growth excluding 45X will outpace revenue growth.

• Tariff exposure with approximately 22% of U.S. sourcing from countries affected by direct tariff costs, estimated direct tariff exposure at $70 million annualized. • Macro-economic uncertainty impacting customer buying patterns. • Volatility in market demand, including lumpiness in orders and backlog fluctuations in certain segments. • Class 8 market remains soft, affecting certain segments' performance.

Q: I want to ask -- on communications outside of that large customer that was front-loading, just maybe you can speak to what you're seeing in that end market in terms of less break and fix, but more network build-out and some pull-through on power electronics? It sounds like you think margins should go higher from here, but just any more color?

A: Shawn O'Connell said communications market has encouraging demand signals with network refresh, driven by increase in data traffic, and power electronics pull-through. Margins expected to continue improving.

Q: So it seems like restructuring benefits starting to hit their run rate here, some additional levers being pulled as well on productivity and just overall increased focus on thoughtful resource allocation. So as we think about how that translates to operating margins, what's sort of a fair way to think about the trend in Energy Systems and kind of overall operating margins, even on a sequential basis for what's implied for 3Q, but just sort of directionally, where should they be heading?

A: Shawn O'Connell and Andrea Funk discussed CoE realignment, target-rich environment for cost and efficiency gains, positive momentum in Energy Systems, and margin improvement expectations across segments with ongoing focus on productivity and resource allocation.

Q: So it seems like restructuring benefits starting to hit their run rate here, some additional levers being pulled as well on productivity and just overall increased focus on thoughtful resource allocation. So as we think about how that translates to operating margins, what's sort of a fair way to think about the trend in Energy Systems and kind of overall operating margins, even on a sequential basis for what's implied for 3Q, but just sort of directionally, where should they be heading?

A: Shawn O'Connell and Andrea Funk discussed CoE realignment, target-rich environment for cost and efficiency gains, positive momentum in Energy Systems, and margin improvement expectations across segments with ongoing focus on productivity and resource allocation.