Enersys (ENS)

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EnerSys (ENS)

F2Q10 Earnings Call

October 30, 2009 9:00 am ET

Executives

John Craig – Chairman, President, and Chief Executive Officer

Michael Philion – Executive Vice President and Chief Financial Officer

Michael G. Hastings – Vice President and Treasurer

Michael J. Schmidtlein – Vice President and Controller

Analysts

John Franzreb – Sidoti & Co.

Michael Gallo – CL King & Associates

Paul Clegg – Jefferies & Co.

Dan Whang – B. Riley & Co.

Walter Nasdeo – Ardour Capital

William Bremer – Maxim Group

Arthur Friedman – Friedman Asset Management

Dana Walker – Kalmar Investments

Elaine Kwei – Piper Jaffray

Presentation

Operator

Great day, ladies and gentlemen, and welcome to the second quarter 2010 EnerSys earnings conference call. My name is [Catina] and I'll 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 chief executive officer.

John Craig

During this call, we will discuss the results of our second quarter of fiscal 2010 and we will comment on the general state of our business. But first, our chief financial officer, Mike Philion, could not be with us today so joining me on the call this morning is Mike Schmidtlein, our vice president and controller, and Mike Hastings, our vice president and treasurer who also handles our investor relationship programs.

Now before we continue, I will ask Mike Hastings to cover information regarding forward-looking statements.

Michael G. Hastings

As a reminder, we will be presenting certain forward-looking statements on this call that are based on management's current expectations and are subject to uncertainties and changes in circumstances. Our 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, please see the forward-looking statements included in Item 2, Managements' Discussion and Analysis of Financial Condition and Results of Operations as set forth in our quarterly report on Form 10-Q for the quarter ended September 27th, 2009, which was filed with the U.S. Securities and Exchange Commission.

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 October 29, 2009 which is located on our Web site at www.enersys.com. Now let me turn it back to you, John.

John Craig

As reported earlier this week, our net sales for the second quarter were $367 million and adjusted diluted earnings per share were $0.32. The improvement in earnings over our first quarter was primarily due to higher volume in the benefit of our cost saving programs.

We continue to be pleased with our ability to maintain appropriate pricing in the face of volatile lead costs. This helped us achieve a 24.1% gross profit in the quarter, a significant improvement over the 22.8% in the first quarter, and was good progress towards our target of a minimum gross profit of 25%.

We have benefited substantially from the restructuring investments we have made during the last two years. Without these cost reductions, our first half adjusted diluted earnings per share of $0.55 would have been substantially less.

We're beginning to see a pickup in orders and firmly believe we have turned the corner on the recession. This pattern is reflected in our earnings and revenue guidance for the third quarter. We're anticipating third quarter adjusted diluted earnings per share will be in the range of $0.35 to $0.39, and we will see another sequential increase in revenue.

Clearly, part of that revenue increase will come from higher pricing that is necessary to offset higher lead costs. The LME cost of lead is increased substantially this year from an average of $0.44 per pound last December to approximately $1.05 per pound. This reinforces our commitment to pricing actions designed to recover higher costs.

We continue to have positive cash flow with net debt down $9 million from the prior quarter, and we remain with $219 million of cash and short-term investments. As we have stated in the past, we plan to use a portion of this cash to fund acquisitions and the anticipated growth in our base business.

For example, you may have seen the announcement last night that we signed a definitive agreement to acquire the Oerlikon Battery operations in Switzerland. Their revenue is over $50 million annually and they have an excellent reputation in both the Reserve Power and Motive Power markets.

We believe there are many synergistic opportunities between Oerlikon and EnerSys, which will lead to substantial savings in the future. We are pleased for the opportunity to have this great brand as part of EnerSys.

Looking at the balance of the year, we are encouraged with our growth perspectives. As we come out of this recession, we believe our base business will have solid growth, particularly with the strong pent up demand that historically occurs in many of our markets.

In addition, we are confident in our ability to grow profitably in areas and segments where we have a low market presence. To achieve this high growth potential, we are now actively focused on expansion plans in additional acquisitions, which will increase our presence in these areas.

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