EnerSys(US:ENS)2022-02-08 16:00Sales Performance - Net sales increased by $92.9 million or 12.4% in the third quarter of fiscal 2022 compared to the same quarter in fiscal 2021, driven by a 10% increase in organic volume and a 3% increase in pricing [162]. - For the nine months ended January 2, 2022, net sales rose by $285.9 million or 13.2%, attributed to an 11% increase in organic volume and a 1% increase in both foreign currency translation impact and pricing [163]. - The Energy Systems segment reported net sales of $385.2 million, a 14.2% increase from $337.2 million in the prior year, representing 45.7% of total net sales [164]. - The Motive Power segment achieved net sales of $339.5 million, an 11.5% increase from $304.4 million, accounting for 40.2% of total net sales [164]. - The Specialty segment's net sales increased by 9.0% to $119.3 million from $109.5 million, making up 14.1% of total net sales [164]. - Net sales of the Energy Systems segment increased by $48.0 million or 14.2% in Q3 FY2022 compared to Q3 FY2021, driven by a 14% increase in organic volume [168]. - Net sales of the Motive Power segment rose by $35.1 million or 11.5% in Q3 FY2022 compared to Q3 FY2021, primarily due to a 9% increase in organic volume and a 5% increase in pricing [169]. - The Specialty segment's net sales increased by $9.8 million or 9.0% in Q3 FY2022 compared to Q3 FY2021, attributed to a 6% increase in pricing and a 3% increase in organic volume [170]. Financial Position - The company has $397 million in available cash and cash equivalents, along with undrawn committed credit lines of approximately $571 million as of January 2, 2022 [159]. - Total cash and cash equivalents decreased by $54.7 million to $397.1 million in the nine months of fiscal 2022, compared to an increase of $161.7 million in the same period of fiscal 2021 [219]. - Primary working capital was $989.9 million at January 2, 2022, yielding a primary working capital percentage of 29.3%, which is 480 basis points higher than March 31, 2021 [213]. - Average debt outstanding was $1,184.0 million in the third quarter of fiscal 2022, compared to $1,086.5 million in the same quarter of fiscal 2021 [202]. - The Second Amended Credit Facility is scheduled to mature on September 30, 2026, with a total revolving credit facility of $850.0 million [224]. - The company is in compliance with all covenants and conditions under its Second Amended Credit Facility and Senior Notes [222]. Operating Performance - Gross profit decreased by $5.0 million or 2.6% in Q3 FY2022 compared to Q3 FY2021, with gross profit margin declining by 340 basis points [172]. - Operating expenses increased by $12.7 million or 10.7% in Q3 FY2022 compared to Q3 FY2021, but as a percentage of net sales, it decreased by 30 basis points [175]. - Total operating earnings decreased by $5.0 million or 8.8% in Q3 FY2022 compared to Q3 FY2021, with a total operating earnings margin of 6.1% [192]. - Operating earnings decreased by $5.0 million or 8.8% in the third quarter of fiscal 2022 compared to the same period in fiscal 2021 [195]. - Energy Systems operating earnings as a percentage of sales decreased by 460 basis points in the third quarter of fiscal 2022 compared to the same quarter in fiscal 2021, impacted by higher lead and freight costs [196]. - Motive Power operating earnings increased by 210 basis points in the nine months of fiscal 2022 compared to the same period in fiscal 2021, driven by strong organic growth and price increases [197]. - Specialty operating earnings increased by 50 basis points in the nine months of fiscal 2022 compared to the same period in fiscal 2021, despite mild declines in defense and aerospace margins [198]. Cost and Pricing Dynamics - The company is experiencing supply chain disruptions and cost spikes in materials, but overall market demand remains robust [151]. - Lead prices have increased from a low of 70 cents per pound to just below $1.10 per pound, impacting production costs [152]. - Approximately 30% of revenue is now subject to agreements that adjust pricing based on market indices for lead, with customer pricing changes typically lagging behind cost increases by six to nine months [153]. - A 10% increase in the cost of lead would have increased cost of goods sold by approximately $19 million and $52 million in the third quarter and nine months of fiscal 2022, respectively [234]. Cash Flow and Activities - Operating activities used cash of $78.0 million in the nine months of fiscal 2022, a decrease from $272.1 million generated in the same period of fiscal 2021 [212]. - Financing activities provided cash of $76.4 million in the nine months of fiscal 2022, including borrowing $424.8 million under the Second Amended Revolver [217]. - Investing activities used cash of $47.7 million in the nine months of fiscal 2022, primarily for capital expenditures of $52.4 million [215]. Tax and Foreign Operations - Earnings before income taxes decreased by $1.0 million or 2.3% in the third quarter of fiscal 2022 compared to the same quarter in fiscal 2021 [206]. - The effective income tax rate for the third quarter of fiscal 2022 was 15.3%, up from 11.9% in the same quarter of fiscal 2021 [208]. - Foreign income as a percentage of worldwide income is estimated to be 79% for fiscal 2022, compared to 67% for fiscal 2021 [209]. - Approximately 40% of sales and related expenses are transacted in foreign currencies, affecting profit margins and competitive position [235]. - The company quantifies and monitors its global foreign currency exposures, with the largest exposure from U.S. dollar-based lead costs converted into local currencies in Europe [236]. - Approximately 5% - 10% of the nominal amount of known foreign exchange transactional exposures are hedged, primarily through foreign currency exchange contracts [237]. - An unfavorable 10% movement in exchange rates would have adversely changed hedge valuations by approximately $42.2 million as of January 2, 2022, compared to $3.8 million as of January 3, 2021 [239]. Internal Controls and Governance - The company's disclosure controls and procedures have been evaluated as effective by the Chief Executive Officer and Chief Financial Officer [241]. - There was no change in the internal control over financial reporting during the quarter that materially affected the company's financial reporting [242].