Enersys (ENS)

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EnerSys (ENS)

Q3 2009 Earnings Call

February 5, 2009 9:00 a.m. ET


John Craig – Chairman, President, and CEO

Michael Philion – Executive Vice President and Chief Financial Officer


John Franzreb – Sidoti & Co.

Paul Clegg – Jefferies & Co.

Corey Tobin – William Blair

Todd Cooper – Stephens Inc.

Richard Baxter – Ardour Capital

Dan Whang – B. Riley

Michael Gallo – CL King

Dana Walker – Kalmar Investments

Chris Agnew – Goldman Sachs

Preetesh Manshi – Piper Jaffray



Good day, ladies and gentlemen, and welcome to the quarter three 2009 EnerSys earnings conference call. My name is Michelle and I will be your coordinator for today. (Operator instructions) I would now like to turn the presentation over to your host for today’s call, Mr. John Craig, Chairman, President, and CEO. Please proceed, sir.

John Craig

Thank you, Michelle. Good morning and thank you for joining us for our conference call. During this call, we will be discussing our results of our third quarter and first nine months of fiscal 2009 as well as commenting on the general state of our business. But before we start, I will ask Mike Philion, our Chief Financial Officer, to cover information regarding forward-looking statements. Mike?

Michael Philion

Thank you, John, and good morning to everyone. As a reminder, we will be presenting forward-looking statements on this call that are based on management's current expectations and assumptions which are subject to uncertainties and changes in circumstances. EnerSys actual results may differ materially from the forward-looking statements for a number of reasons. Our forward-looking statements are based on management's current views regarding future events and operating performance, and are applicable only as of the dates of such statements. For a list of the factors which could affect our future results, including our earnings estimates, see forward-looking statements included in item 2 of management's discussion and analysis of financial condition and results of operations set forth in our quarterly report on form 10-Q for the quarter ended December 28, 2008, which was filed last evening with the United States SEC.

In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our company's form 8-K, which includes our press release dated February 4, 2009, which is located on our website at www.enersys.com. Now, let me turn the call back to you, John.

John Craig

Thanks Mike. Last evening, we reported our third quarter results with adjusted diluted earnings per share of 80% to a record $0.63 compared to $0.35 in the prior year quarter. With global economic activity declining, our third quarter revenue declined 17% with organic volume down 10% versus the prior year third quarter. In spite of this, we achieved another sequential increase in our gross profit percentage from 20.7% in the second quarter to 22% in the third quarter. We continue to benefit from lower material cost in our ongoing cost reduction programs.

As I stated in previous calls, our goal is to achieve 25% gross profit, and I’m pleased with the improvement we made this quarter given the current economic environment. To help reach our 25% goal, we have further actions planned. Last night, we announced the closing of our manufacturing facility in Italy and then move this production to lower-cost locations. We’re in the process of implementing additional significant cost reduction actions around the world. We anticipate that the plant closing and the other recent actions, when fully implemented, will result in an annualized savings of approximately $13 million or $0.19 per share.

During this period of economic decline, we are in a very good position in several respects. First, we are enhancing our leadership position in the global industrial battery markets and we believe we will continue to increase our market share by staying focused on our customers. In this regard, we recently learned that several Chinese telecom companies plan to invest $41 billion in the next two years to operate their infrastructure. We estimate that this will result in at least $500 million in new battery purchases, and we are confident that we will receive a reasonable share of this business.

Second, as previously reported, we completed our refinancing last spring with favorable terms in pricing. Our all-in interest rate is approximately 5%. We do not have any significant term debt due in the next four years and we continue to have positive cash flow. We have $91 million in short-term investments at the end of our third quarter, a substantial increase from 55 million at the end of September. The $36-million increase was achieved even after the payment of approximately $20 million in October for the repurchase of EnerSys stock. We also have approximately $200 million in available credit lines. Our strong financial conditions allow us to pursue acquisitions and we anticipate that good opportunities will become available as a result of the difficult economic climate. We are continuing our major expansion project to increase capacity for thin plate pure lead products. This premium technology is used in a wide variety of applications. It remains the top performing technology in lead-acid batteries.

In addition, we are fortunate to have the financial strength to continue the necessary spending to restructure our operations and substantially reduce our future cost. Last night, we reported that we expect adjusted diluted earnings per share between $0.30 and $0.34 for the fourth quarter of 2009. This is a sequential decline in earnings but we believe still a very solid performance in the face of the current economic environment. We remain confident about our prospects for profitable operations even at the bottom of this economic cycle.

In summary, as stated in our conference call last August, we saw the beginning of market decline so we took immediate actions to enhance earnings. These actions helped us achieve our record $0.63 cents of earnings in the third quarter. As I mentioned earlier, we are closing our Italian plant; along with other actions, will result in an annualized savings of approximately $13 million or $0.19 a share when fully implemented. All the actions we are taking now will clearly put us in a very strong position when the global economy turns. Stated in other words, EnerSys’s plans to act (ph) at this global recession a stronger company than when we entered this recession.

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