EnerSys(US:ENS)2022-11-08 16:00Sales Performance - Net sales increased by $108.0 million, or 13.7%, in Q2 fiscal 2023 compared to Q2 fiscal 2022, driven by a 10% increase in organic growth and a 9% increase in pricing [162]. - For the six months ended October 2, 2022, net sales rose by $192.1 million, or 12.0%, attributed to a 9% increase in organic volume and an 8% increase in pricing [163]. - The Energy Systems segment reported net sales of $437.0 million, accounting for 48.6% of total net sales, an increase of 18.2% compared to the previous year [164]. - The Motive Power segment generated $338.0 million in sales, representing 37.6% of total net sales, with a 5.4% increase year-over-year [164]. - Specialty segment sales reached $124.4 million, making up 13.8% of total net sales, reflecting a 23.3% increase compared to the prior year [164]. - Net sales of the Energy Systems segment increased by $67.2 million or 18.2% in Q2 FY2023 compared to Q2 FY2022, driven by a 14% increase in organic growth and a 9% increase in pricing [167]. - The Motive Power segment's net sales rose by $17.3 million or 5.4% in Q2 FY2023, primarily due to a 9% increase in pricing and a 3% increase in organic volume [168]. - Specialty segment net sales increased by $23.5 million or 23.3% in Q2 FY2023, with a 19% increase in organic volume and a 7% increase in pricing [169]. Financial Position - The company has $294 million in cash and cash equivalents and approximately $653 million in available and undrawn committed credit lines as of October 2, 2022 [158]. - Total cash and cash equivalents decreased by $108.1 million to $294.4 million in the six months of fiscal 2023, compared to a decrease of $44.3 million to $407.5 million in the same period of fiscal 2022 [215]. - Primary working capital was $1,172.6 million at October 2, 2022, yielding a primary working capital percentage of 32.6%, which is 390 basis points higher than March 31, 2022 [209]. - The company is in compliance with all covenants and conditions under its Third Amended Credit Facility and believes it has the financial resources to fund foreseeable organic growth and pursue acquisition opportunities [219]. Operating Performance - Gross profit increased by $17.0 million or 9.6% in Q2 FY2023, but gross profit margin decreased by 80 basis points compared to Q2 FY2022 [171]. - Operating expenses as a percentage of sales decreased by 50 basis points in Q2 FY2023 compared to Q2 FY2022 [173]. - Selling expenses increased by $1.8 million or 3.4% in Q2 FY2023, but decreased as a percentage of net sales [174]. - Total operating earnings for the company were $54.3 million in Q2 FY2023, representing a 9.2% increase compared to Q2 FY2022 [187]. - Energy Systems operating earnings increased by $10.0 million or 120.5% in the six months ended October 2, 2022, compared to the same period in the previous year [188]. - Motive Power operating earnings decreased by $9.8 million or 10.5% in the six months ended October 2, 2022, compared to the same period in the previous year [188]. - Specialty operating earnings decreased by $5.0 million or 22.4% in the six months ended October 2, 2022, compared to the same period in the previous year [188]. - Total operating earnings decreased by $6.2 million or 5.6% in the six months ended October 2, 2022, compared to the same period in the previous year [188]. Costs and Expenses - The company expects continued headwinds from inflated commodity prices, labor, and energy costs, leading to further increases in selling prices in the upcoming year [154]. - Interest expense increased by $8.3 million or 44.9% in the six months of fiscal 2023 compared to the same period in fiscal 2022, primarily due to higher borrowing levels [195]. - A 10% increase in the cost of lead would have increased the cost of goods sold by approximately $20 million in the second quarter and $43 million in the six months of fiscal 2023 [232]. - Approximately 30% of the company's revenue is now subject to agreements that adjust pricing to a market-based index for lead [153]. - Approximately 40% of sales and related expenses are transacted in foreign currencies, impacting profit margins and competitive position [233]. Tax and Income - Earnings before income taxes increased by $0.4 million or 0.8% in the second quarter of fiscal 2023 compared to the same period in fiscal 2022, but decreased by $15.1 million or 16.5% in the six months of fiscal 2023 compared to the same period in fiscal 2022 [202]. - The effective income tax rate for the second quarter of fiscal 2023 was 14.4%, an increase from 10.8% in the same quarter of fiscal 2022 [204]. - Foreign income as a percentage of worldwide income is estimated to be 83% for fiscal 2023 compared to 87% for fiscal 2022 [206]. - The foreign effective tax rates for the six months of fiscal 2023 and 2022 were 12.0% and 10.0%, respectively [206]. Cash Flow and Financing - Operating activities used cash of $70.3 million in the six months of fiscal 2023, compared to $65.6 million in the same period of fiscal 2022, primarily due to changes in primary working capital [208]. - Financing activities used cash of $0.9 million in the six months of fiscal 2023, with $244.1 million borrowed and $184.1 million repaid under the Second Amended Revolver [213]. - Investing activities provided cash of $4.1 million in the six months of fiscal 2023, primarily from proceeds of $43.4 million from the termination of a net investment hedge [211]. Risk Management - The company experienced fluctuations in lead prices, ranging from just above $1.10 per pound to approximately $0.85 per pound since the beginning of fiscal year 2023 [152]. - The company hedges approximately 5% - 10% of the nominal amount of known foreign exchange transactional exposures [235]. - An unfavorable 10% movement in exchange rates would have adversely changed the company's hedge valuations by approximately $26.1 million as of October 2, 2022, compared to $3.5 million as of October 3, 2021 [237]. Internal Controls - The company's management, including the CEO and CFO, concluded that the disclosure controls and procedures are effective as of the end of the reporting period [239]. - There was no change in the company's internal control over financial reporting during the quarter that materially affected or is likely to materially affect its internal control over financial reporting [240].