BERN TWP., Pa. - Managing a large industrial company isn't always easy.
EnerSys, the Bern Township battery maker, reported fiscal 2020 second quarter results that were mixed compared to the previous year, but exceeded analysts' expectations. The company, however, said a number of factors that contributed to the decline, and that will impact results in the future, were largely out of its control.
The global trade war and its costly tariffs have caused a slowdown in business in China, although David M. Shaffer, EnerSys's president and chief executive officer, told analysts during an earnings call that the company is moving much of its Chinese manufacturing capacity to other countries. He expects, however, tariffs to have a $0.05 per share impact on earnings going forward.
A fire in the battery formation area of its motive power production facility, in Richmond, Kentucky, on Sept. 19, resulted in significant property damage but no injuries to workers, he said.
Shaffer told analysts that EnerSys expects to lose $20 million in sales in the fiscal third quarter and it will have to fight to regain the lost business from competitors. The company is assessing whether to shift production to other motive power facilities in North America, as well as transferring formation equipment to Richmond.
On top of that, there were spending cuts by a major telecom customer that Shaffer characterized as "dreadful, draconian," and there was uncertainty caused by the possible merger of AT&T and T-Mobile.
There was, however, positive news to report.
On the same day as the fire at the Richmond plant, Enersys announced it acquired N Holding AB, the parent company of NorthStar, from Altor Fund II. The Swedish company has two facilities in Springfield, Missouri, that manufacture batteries nearest in design and performance to EnerSys TPPL (thin plate pure lead) products. In addition to the ability to build Odyssey, NexSys, and SBS battery products, NorthStar's presence in Europe will allow a rebalancing of factory loading and a dramatic reduction in inventory, freight, duty and currency risks.
The transaction is expected to generate annual run-rate synergies in excess of $40 million to EnerSys.
The company's year earlier acquisition of Alpha Group also was a positive.
"Our second-quarter adjusted EPS of $1.23 was in the upper end of our guidance and reflected a stronger than expected performance from our Alpha business," Shaffer said. "Alpha enjoyed strong book and ship orders during the quarter while our EMEA motive power and most of the global telecom industry spending remains constrained."
Key financial results
Net sales for the second quarter of fiscal 2020 were $762.1 million, an increase of 15% from the prior year second-quarter net sales of $660.5 million and a 2% sequential quarterly decrease from the first quarter of fiscal 2020 net sales of $780.2 million. The increase in the current quarter, compared to the prior year quarter, was the result of a 22% increase due to the Alpha acquisition, partially offset by a 4% decrease in organic volume, a 2% decrease in foreign currency translation impact and a 1% decrease in pricing. The 2% sequential quarterly decrease was primarily due to a 1% decrease each in organic volume and foreign currency translation impact.
Net earnings for the second quarter of fiscal 2019 were $47.4 million, or $1.11 per diluted share, which included an unfavorable net of tax impact of $2.5 million, or $0.06 per diluted share.
Adjusted net earnings per diluted share for the second quarter of fiscal 2020, on a non-GAAP (generally accepted accounting principles) basis, were $1.23, which compared to guidance of $1.20 to $1.24 per diluted share for the second quarter given by the company on August 7, 2019. These earnings compare to the prior year second quarter adjusted net earnings of $1.17 per diluted share.
Net sales for the six months of fiscal 2020 were $1,542.3 million, an increase of 16% from the net sales of $1,331.4 million in the comparable period in fiscal 2019.
Net earnings for the six months of fiscal 2020 were $111.3 million, or $2.59 per diluted share, which included a favorable net of tax impact of $2.7 million, or $0.06 per diluted share, from cash and non-cash charges. Adjusted net earnings for the six months of fiscal 2020, on a non-GAAP basis, were $2.53 per diluted share.
This increase was the result of a 22% increase due to the Alpha acquisition, partially offset by a 3% decrease in organic volume, a 2% decrease in foreign currency translation impact and a 1% decrease in pricing.
"In our third quarter, we expect the seasonal decline in outside plant activity for telecom, and broadband customers will reduce Alpha's contribution and we expect our legacy business to incur approximately $20 million in lost sales due to the fire at our Richmond facility," Shaffer said. "Any insurance recovery on lost sales is not reflected in this guidance.
"Our third quarter guidance for non-GAAP adjusted net earnings per diluted share is between $1.12 to $1.16, which excludes an expected charge of $0.49 primarily related to NorthStar integration costs, restructuring programs and amortization of Alpha's identified intangible assets."
EnerSys (ENS: NYSE) provides stored energy solutions for industrial applications. The company has an extensive line of motive power, reserve power, and specialty batteries with a full range of integrated services and systems, and sales and service locations around the world.