EnerSys(US:ENS)2025-11-05 21:16Workforce Reduction and Restructuring - The company announced a reduction in force plan to reduce non-production global workforce by approximately 11%, or about 575 employees, with estimated one-time cash charges between $15.0 million to $20.0 million[160] - The company announced a reduction in force plan expected to reduce the global workforce by approximately 11%, or about 575 employees, with one-time cash charges estimated at $20.0 million[195] - The company plans to close its Monterrey, Mexico facility, incurring a pre-tax charge of approximately $13.7 million, with $12.2 million in cash charges expected for severance and related costs[196] - The company recorded a $3.9 million severance cost during the first half of fiscal 2026 related to restructuring efforts[197] - The company incurred cash charges of $9.2 million related to the closure of the Ooltewah, Tennessee facility, which produced flooded motive power batteries[207] Financial Performance - Net sales increased by $67.6 million or 7.7% in Q2 fiscal 2026 compared to Q2 fiscal 2025, driven by a 3% increase in organic volume and pricing[182] - Net sales for the first six months of fiscal 2026 rose by $107.7 million or 6.2% compared to the same period in fiscal 2025, attributed to a 2% increase in acquisitions and pricing[183] - Gross profit increased by $25.1 million or 9.9% in Q2 fiscal 2026, with gross profit margin improving by 60 basis points compared to Q2 fiscal 2025[189] - Operating earnings for the quarter ended September 28, 2025, were $92.0 million, a decrease of 7.4% from $99.4 million in the same quarter of the previous year[217] - Operating earnings decreased by $12.2 million or 6.4% for the six months of fiscal 2026 compared to the same period in fiscal 2025[220] - Earnings before income taxes for the six months ended September 28, 2025, were $142.1 million, down 13.1% from $163.5 million in the prior year[231] - Income tax expense for the six months ended September 28, 2025, was $16.2 million, a 45.8% increase from $11.1 million in the same period of 2024[233] - Interest expense remained flat at $23.5 million for the six months of fiscal 2026, compared to the same period in fiscal 2025[224] - Other (income) expense, net for the six months ended September 28, 2025, was an expense of $12.9 million, significantly higher than $3.7 million in the prior year[229] Segment Performance - Energy Systems segment net sales increased by $52.6 million or 13.8% in Q2 fiscal 2026, with a 10% increase in organic volume[185] - Motive Power segment net sales decreased by $7.0 million or 1.9% in Q2 fiscal 2026, primarily due to a 6% decrease in organic volume[186] - Specialty segment net sales increased by $22.0 million or 16.3% in Q2 fiscal 2026, driven by a 7% increase from acquisitions and organic volume[187] - The Energy Systems segment reported operating earnings of $33.6 million, a 37.8% increase from $24.2 million in the prior year[217] - The Motive Power segment experienced a decline in operating earnings to $47.9 million, down 16.7% from $57.6 million year-over-year[217] - The Specialty segment saw a significant increase in operating earnings to $14.6 million, up 97.7% from $7.5 million in the previous year[217] Cash and Liquidity - The company has $388.6 million in available cash and cash equivalents and $489.3 million in undrawn committed credit lines as of September 28, 2025[172] - The company purchased 2,375,741 shares for $217.8 million during the first six months of fiscal 2026, indicating strong capital structure and liquidity[181] - Operating activities generated cash of $219.0 million in the first six months of fiscal 2026, a significant increase from $44.0 million in the same period of fiscal 2025[240] - Investing activities used cash of $62.4 million in the first half of fiscal 2026, primarily for capital expenditures of $53.9 million and acquisitions of $12.7 million[242] - Financing activities used cash of $128.2 million in the first six months of fiscal 2026, including treasury stock purchases totaling $217.8 million[244] - Total cash and cash equivalents increased by $45.5 million to $388.6 million in the first half of fiscal 2026, compared to an increase of $74.6 million to $407.9 million in fiscal 2025[246] Market Conditions and Economic Factors - The ongoing geopolitical tensions, including the war in Ukraine and the Israel-Hamas conflict, are impacting global economic conditions and supply chains[164] - Inflation remains a challenge in North America, China, and EMEA, although it is somewhat more controlled compared to sharp increases in 2023[165] - The data center market is currently in a growth cycle driven by AI and increasing digitization, while the communications market is experiencing a slow spending recovery[167] - The company anticipates that selling prices will be higher in fiscal 2025 compared to fiscal 2024 due to inflationary cost increases[169] Commodity and Foreign Exchange Exposure - The company experienced fluctuations in lead prices, ranging from approximately $1.00 per pound to $0.90 per pound in fiscal year 2025, impacting production costs[168] - Approximately 25% of the company's revenue is now subject to agreements that adjust pricing based on a market-based index for lead, with customer pricing changes generally lagging behind commodity price movements by six to nine months[168] - The company has forward contracts for lead, with a total value of $95.2 million for 104.4 million pounds at an average cost of $0.91 per pound, covering 18% of lead requirements[262] - Approximately 93% of the cost of lead requirements is known for the remaining quarter of the fiscal year, considering hedge contracts and FIFO accounting policy[263] - A 10% increase in the cost of lead would have raised the cost of goods sold by approximately $18.0 million in the three months of fiscal 2026[264] - About 40% of sales and related expenses are transacted in foreign currencies, impacting sales revenue and profit margins[265] - The largest foreign currency exposure arises from converting U.S. dollar-based lead costs into local currencies in Europe[266] - The company hedges approximately 5% - 10% of its known annual foreign exchange transactional exposures[267] - Gains and losses from hedging instruments offset foreign exchange gains or losses on the underlying assets and liabilities[268] - An unfavorable 10% movement in exchange rates would have adversely changed hedge valuations by approximately $81.0 million and $48.8 million at September 28, 2025, and September 29, 2024, respectively[269] Taxation - The company continues to monitor the impact of global tax legislation, including the OECD's Pillar 2, which may affect future tax rates[234] - The consolidated effective income tax rates for Q2 fiscal 2026 and 2025 were 10.5% and 2.3%, respectively, with a six-month rate of 11.4% for fiscal 2026 compared to 6.8% for fiscal 2025[237] - Foreign income accounted for 53% of worldwide income for both fiscal 2026 and 2025, with foreign effective tax rates increasing from 15% in fiscal 2025 to 17% in fiscal 2026[238]