EnerSys (ENS)

Q1 2013 Earnings Call

August 09, 2012 9:00 am ET


John D. Craig - Chairman, Chief Executive Officer and President

Michael J. Schmidtlein - Chief Financial Officer and Senior Vice President of Finance


Zach Larkin - Stephens Inc., Research Division

Michael W. Gallo - CL King & Associates, Inc.

Jesse Pichel - Jefferies & Company, Inc., Research Division

Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division

Tim Mulrooney

William J. Dezellem - Tieton Capital Management, LLC

Howard Rosencrans

William D. Bremer - Maxim Group LLC, Research Division



Good day, ladies and gentlemen, and welcome to the First Quarter 2013 EnerSys Earnings Conference Call. My name is Chequana 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 D. Craig

Thank you. Good morning, and thank you for joining us for our call this morning. Last night, we posted on our website, slides that we're going to be referring to during the call this morning. So if you didn't get a chance to see this information, you may want to go to our website at www.enersys.com and view the slides.

Before we get into the details of our first quarter results, I'm going to ask Mike Schmidtlein, our Chief Financial Officer, to cover information regarding forward looking statements. Mike?

Michael J. Schmidtlein

Thank you, John and good morning to everyone. 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, see forward-looking statements included in Item 2, 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 July 1, 2012, 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 August 8, 2012, which is located on our website at www.enersys.com.

Now let me turn it back to you, John.

John D. Craig

Thanks, Mike. I'd like to start by saying that we're very pleased with our accomplishments and financial results for the first quarter. As many of you know from our historical results, our first quarter sales are normally lower sequentially when compared to our fourth quarter. The first quarter is an exception, as you can see on Slide 3, our sales of $594 million are an all-time record for any quarter in the company's history. And this is in spite of a $12 million sequential foreign exchange headwind.

You also notice on Slide 3 that this is the first time in 8 years that we are able to reach our minimum target of 25% gross profit. The higher gross profit has allowed us to exceed our minimum target of 10% operating earnings. In fact, our $71 million in adjusted operating earnings for the quarter is equal to 11.9% of net sales, which is an all-time record. The net effect of the above points resulted in record first quarter earnings of $0.95 per share, which is $0.27, or 41% higher than the previous first quarter record.

We also reported last night our second quarter fiscal quarter guidance of $0.85 to $0.89 earnings per share. As you may remember, historically, our second quarter is our least profitable quarter due to the impact of occasion seasons in Europe and the Americas. However, even if we hit the lower end of our guidance of $0.85, we still report an EPS increase of $0.27, or 47% higher than our previous second quarter record.

In the Americas, we continue to see good growth and profitability in both our Motive and Reserve Power business. Our Asia results are fantastic and driven by strong sales in Reserve Power and Motive Power. We don't anticipate any changes to these trends in the second quarter. As all of us have read, there's real concern about the financial and economic situation in Western Europe. In spite of these headwinds, our Europe, Middle East and African results are improving year-over-year as highlighted on Slide 4 and we anticipate this momentum will continue.

First, our EMEA reserve power business is up 13% organically over last year's first quarter. In addition, since Europe has only 2% of the world's 4G deployment, when it is rolled out, we believe there's further opportunity to increase our sales of Reserve Power batteries.

Second, approximately 1/3 of reserve power batteries sold in Europe are sourced from China, which are becoming more expensive. Lead from China is approximately $0.20 per pound more expensive than lead-priced LME, which is about 25% -- 20% to 25% premium. The euro has weakened by over 10% year-over-year and this also makes China products more expensive in Europe and China costs are also increasing due to the environmental improvement campaign in China. These 3 factors should allow us to pick up quality market share to obtain better pricing. Third, and this is unique to EnerSys, we invested heavily in all of our European facilities which has reduced our cost base. This puts EnerSys in a much better position than our competitors to deal with market changes. For example, over 50% of our European manufacturing capacity has moved to our lower-cost Eastern European facilities.

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