EnerSys(US:ENS)2021-02-11 17:46Financial Data and Key Metrics Changes - The third quarter net sales decreased 2% year-over-year to $751 million, with a 3% decrease from volume offset by a 1% increase from currency [17] - Adjusted consolidated operating earnings increased approximately $15 million to $78 million, with the operating margin up 210 basis points [19] - Adjusted net earnings rose to $55 million, nearly $11 million higher than the prior year, with EPS increasing 22% to $1.27 [24][25] Business Line Data and Key Metrics Changes - Motive power net sales decreased 4% to $304 million, while Energy Systems net sales were down 2% at $337 million, and specialty increased 7% to $109 million [17] - Motive power operating earnings percentage improved to 13.3%, up from 10% in the prior year, primarily due to a $6 million insurance recovery [20][21] - Specialty operating earnings percentage increased to 11.9%, up from 10.1% year-over-year, driven by higher volume and lower operating expenses [23] Market Data and Key Metrics Changes - Net sales for the Americas were down 1% year-over-year to $499 million, while EMEA was down 4% to $194 million, and Asia remained flat at $58 million [17] - Sequentially, third quarter net sales were up 6% compared to the second quarter, driven by volume improvements, particularly in specialty and motive power [18] Company Strategy and Development Direction - The company aims to accelerate higher margin maintenance-free motive power sales and grow its Energy Systems business, particularly in telecom [15] - Plans to respond to renewable energy market opportunities by updating product offerings and leveraging existing technologies for EV charging [10][14] - The company is focused on application stacking to create multiple value streams from its products, particularly in energy storage and EV charging [44] Management's Comments on Operating Environment and Future Outlook - Management noted strong demand for products despite ongoing COVID-19 challenges, with a record backlog expected to drive growth [30] - The company anticipates sequential improvement in revenue for the fourth quarter, estimating a shortfall of $60 million to $70 million compared to pre-COVID budgets [31] - Management expressed confidence in the recovery of motive power markets and the positive prospects for Energy Systems and specialty markets [27] Other Important Information - The company has nearly $489 million in cash and a credit agreement leverage ratio below 2 times, providing significant borrowing capacity [26] - Capital expenditures for fiscal 2021 are expected to be around $75 million, with ongoing investments in lithium battery development and capacity expansion [26] Q&A Session All Questions and Answers Question: Can you dimension the impact of capacity constraints on revenue currently? - Management indicated that the company has a record backlog and expects a sequential improvement in revenue for the fourth quarter, but constraints primarily stem from supply chain issues and hiring challenges [30][31] Question: Can you update on NorthStar integration progress? - Management reported that product qualification is on track, with significant logistics savings expected as production optimizes [33][34] Question: When should we expect the company to have a product in the EV fast charging market? - Initial prototypes are being developed, with a focus on leveraging existing competencies in energy storage and charging infrastructure [38] Question: How do you see the competitive landscape for lithium batteries? - Management noted that while competition exists, the company is well-positioned with its NexSys iON product and aims to offer superior solutions to maintain market share [51][53] Question: What are the expectations for gross margin in fiscal '22? - Management expects margin expansion of 100 to 200 basis points by the end of fiscal '22, contingent on capacity improvements and pricing adjustments [49][50]