EnerSys (NYSE: ENS), the global leader in stored energy solutions for industrial applications, has demonstrated its ability to navigate a challenging environment while positioning itself for long-term growth. With a diverse portfolio spanning Energy Systems, Motive Power, Specialty, and New Ventures, the company has reported solid financial results, showcasing its resilience and adaptability.

Financials

For the fiscal year 2024, EnerSys reported annual net income of $269,096,000 and annual revenue of $3,581,871,000. The company's annual operating cash flow reached $457,029,000, while its annual free cash flow stood at $370,592,000. These figures highlight EnerSys' financial strength and its ability to generate substantial cash flows to fund its strategic initiatives.

In the fourth quarter of fiscal 2024, the company reported net sales of $911 million, down from the prior year's quarter due to a 6.9% decrease in volume, primarily driven by temporary telecom/broadband spending pauses. However, the company maintained price mix and benefited from a reduction in inflationary pressures, leading to an adjusted gross profit of $255 million, up $9 million year-over-year. Adjusted gross margin improved 310 basis points to 28%, including $36 million of Inflation Reduction Act (IRA) benefits.

Adjusted operating earnings in the fourth quarter were $109 million, a $2 million improvement over the prior year. Excluding the IRA benefits, adjusted operating earnings were $73 million, down $17 million year-over-year, primarily due to the telecom/broadband spending pauses, partially offset by the early impact of $47 million in annualized hard cost improvements. Adjusted EBITDA was $124 million, up $6 million, with an adjusted EBITDA margin of 13.7%, an increase of 180 basis points.

For the full fiscal year 2024, EnerSys generated adjusted operating profit of $450 million, including $136 million in benefits from the Inflation Reduction Act's IRC 45x tax credits. Adjusted diluted EPS was $8.35 per share, an increase of 56% over the prior year.

Business Overview

The company's diversified business model has been a key strength, with its Motive Power and Specialty segments performing well. In the fourth quarter, Motive Power revenue increased 3% year-over-year, driven by a 5% volume increase and 1% from acquisitions, partially offset by price mix and foreign exchange headwinds. Motive Power adjusted operating earnings contributed $58 million, up 15% over the prior year, with adjusted operating margins improving 160 basis points to 14.7%.

The Specialty segment also showed resilience, with revenue decreasing 1% from the prior year to $146 million on flattish volume and a 1% reduction in price mix. Adjusted operating earnings for Specialty were $8.5 million, down $1 million from the prior year, with adjusted operating margin of 5.8%, down 80 basis points. The company is optimistic about the growth opportunities in Specialty, driven by strength in the transportation and aerospace and defense end markets, as well as the enhanced capacity, flexibility, and expansion it anticipates in the coming quarters.

The Energy Systems segment, however, faced challenges, with revenue declining 19% from the prior year to $369 million, primarily due to lower volumes and foreign exchange headwinds. Adjusted operating earnings for Energy Systems were $17 million, down $12 million year-over-year, with adjusted operating margin decreasing 180 basis points to 4.7%. The company has taken decisive actions to improve the margin profile of this business, including $47 million in annualized hard cost savings, which are expected to be realized in fiscal year 2025.

Outlook

Looking ahead, EnerSys provided guidance for fiscal year 2025, with a revenue range of $3.675 billion to $3.825 billion and adjusted diluted EPS of $8.55 to $8.95 per share. The company expects ongoing volume growth in Motive Power and Specialty, a return to normalcy in telecom/broadband markets, and further earnings expansion from the margin improvement actions taken in Energy Systems.

Recent Developments

The company's strategic initiatives, including the acquisition of Bren-Tronics, are expected to drive long-term growth. Bren-Tronics, a leading manufacturer of rechargeable batteries for military and critical applications, will expand EnerSys' presence in the attractive and growing defense market, broaden its product offerings, and strengthen its product development capabilities.

EnerSys' focus on sustainability is also noteworthy, as the company has made progress in reducing its absolute Scope 1 emissions by 4.2% from calendar year 2022 and its energy intensity by 15% since calendar year 2020. The company's commitment to sustainability aligns with the growing demand for energy-efficient and environmentally-friendly solutions.

Conclusion

Despite the challenges faced in the telecom/broadband market, EnerSys has demonstrated its ability to navigate the current environment and position itself for long-term success. The company's diversified business model, strategic initiatives, and focus on operational excellence have positioned it well to capitalize on the growing demand for reliable energy solutions across its various end markets.