EnerSys(US:ENS)2020-11-12 18:08Financial Data and Key Metrics Changes - The second quarter net sales decreased 7% year-over-year to $708 million, driven by an 11% decrease in volume and a 1% decrease in pricing, offset by a 1% increase from currency and a 4% increase from acquisitions [29][30] - Adjusted consolidated operating earnings decreased approximately $9 million to $66 million, with the operating margin down 50 basis points [34][38] - Adjusted net earnings of $43 million were nearly $10 million lower than the prior year, reflecting the decline in operating earnings and a $4 million foreign currency loss [38] Business Line Data and Key Metrics Changes - Motive Power net sales were down 21% to $264 million, while Energy Systems net sales were down 1% at $341 million, and Specialty increased 24% to $104 million [30] - Specialty segment saw a 64% growth in transportation business, driven by new customer sign-ups for ODYSSEY TPPL products [24] - Maintenance-free TPPL NexSys sales in the Americas were up 25% year-over-year, while flooded lead-acid battery sales were down 25% [23] Market Data and Key Metrics Changes - Net sales for the Americas were down 8% year-over-year to $481 million, with an 11% volume drop [31] - EMEA sales decreased 6% to $172 million, while Asia saw a 3% increase to $56 million, primarily due to currency effects [31] - The broadband business is expected to transition from a headwind to a tailwind as major customers begin allocating increased CapEx to network powering [14] Company Strategy and Development Direction - The company is focusing on growing its product portfolio in energy systems, particularly in telecom, and accelerating higher-margin maintenance-free motive power sales [19][20] - The closure of the Hagen, Germany facility reflects a strategic shift towards maintenance-free solutions and an oversupply of flooded batteries [43][52] - The company expects steady 6% plus CAGR in energy system sales over the next five years, driven by 5G-related opportunities [22] Management's Comments on Operating Environment and Future Outlook - Management noted that the diversified nature of the business helped mitigate the impact of COVID-19, with strong cash flow generation allowing for debt reduction [11][41] - The company anticipates that the conversion to maintenance-free solutions is progressing faster than expected, which has influenced operational decisions [45] - Management expressed optimism about the long-term impact of 5G on the business, despite short-term challenges [22][56] Other Important Information - The company generated over $87 million in free cash flow in the second fiscal quarter, with a strong balance sheet and nearly $414 million in cash on hand [41] - Capital expenditures for the first half of the fiscal year were $40 million, with expectations for a total of approximately $65 million to $70 million for fiscal '21 [42] Q&A Session Summary Question: Orders cadence and trends - Management indicated that orders have stabilized over the last 12 weeks, with significant improvements in the motive power segment, particularly in the US and China [48][49] Question: Closure of the German facility and technology shifts - The decision to close the facility was influenced by the transition to maintenance-free batteries and an oversupply of flooded products [50][52] Question: 5G related revenue streams - Management expects growth in the telecom sector to accelerate, particularly in the spring, with significant projects in the pipeline from major broadband customers [54][56] Question: Specialty and defense business outlook - The defense business is expected to remain steady, with growth driven by thermal products and satellite business, despite potential changes in administration [59][60] Question: Rollout of lithium products - Management is cautious about the near-term impact of lithium products on EPS, expecting revenue in the tens of millions for fiscal year '22 [67][68]