Exchange: NYSE | Sector: Industrials | Industry: Electrical Equipment Parts
Q4 2024
Published: May 22, 2024
Earnings Highlights
Revenue of $910.72M down 8% year-over-year
EPS of $1.48 decreased by 6.2% from previous year
Gross margin of 27.9%
Net income of 60.91M
"Adjusted earnings per share for the quarter of $2.08 was at the high end of our guidance range and revenue of $911 million was in line with our expectations, with the diversification of our end markets helping to offset some of the continued softness in telco/broadband spending." - David Shaffer
EnerSys (ENS) QQ4 2024 Results – Data Center Momentum, Margin Expansion Fueled by IRA Benefits and Transformation Actions in a Cyclical Industrials Environment
Executive Summary
EnerSys delivered a resilient finish to fiscal year 2024, balancing a material year-over-year revenue decline with meaningful margin expansion driven by inflation-reduction-act (IRA) benefits and aggressive cost-improvement actions. Q4 net sales of $911 million were down 8% YoY, but the company highlighted diversified end markets helping offset telco/broadband softness. For the full year, revenue totaled $3.6 billion, down 3% YoY, yet adjusted gross margin expanded to 28.0% in Q4 (24.1% ex-IRA) and adjusted operating earnings rose to $109 million in the quarter (adjusted operating margin 12%), supported by $36 million of IRA-driven COGS reductions and disciplined pricing. Management underscored ongoing margin discipline through Energy Systems restructuring, cost actions, and a broader push into high-growth data-center and lithium ecosystems. EnerSys reaffirmed its long-range target framework, including a path to 2027 EPS of $11–$13 and a strategic emphasis on data-center power, maintenance-free motive power, and new ventures in fast charging and energy storage.
The company also signaled substantial near-term investments and protective measures: a $47 million hard annualized cost savings program for FY2025 within Energy Systems (versus ~$40 million already realized in FY2024), a planned Bren-Tronics acquisition to accelerate lithium product offerings and defense applications, and continued progress toward domestic lithium manufacturing readiness. While near-term revenue remains exposed to telecom/broadband cycles, EnerSys projects a trough-to-recovery trajectory in Energy Systems during 2025, with Motive Power and Specialty markets expected to remain healthy. The management team framed 2025 guidance around resilient volumes in Motive Power and Specialty, normalization of telecom/broadband spend, and ongoing margin expansion from Energy Systems. Investors should monitor telco/broadband spend recovery, the Bren-Tronics integration, and IRA-related tax refunds expected in FY2025.
Key Performance Indicators
Revenue
910.72M
QoQ: 5.71% | YoY:-8.00%
Gross Profit
254.53M
27.95% margin
QoQ: 2.37% | YoY:3.44%
Operating Income
97.22M
QoQ: 4.99% | YoY:1.87%
Net Income
60.91M
QoQ: -20.02% | YoY:-7.64%
EPS
1.51
QoQ: -19.68% | YoY:-6.21%
Revenue Trend
Margin Analysis
Key Insights
Q4 net sales: $910.7 million, down 8.0% YoY; QoQ growth of 5.71%.
Q4 gross profit: $254.5 million; gross margin 27.95%. YoY gross profit up 3.44%; QoQ up 2.37%.
Q4 adjusted gross margin: 28.0% (benefited by IRA credits); ex-IRA adjusted gross margin: 24.1%, up 100 bps YoY.
Revenue and Margin
- Q4 net sales: $910.7 million, down 8.0% YoY; QoQ growth of 5.71%.
- Q4 gross profit: $254.5 million; gross margin 27.95%. YoY gross profit up 3.44%; QoQ up 2.37%.
- Q4 adjusted gross margin: 28.0% (benefited by IRA credits); ex-IRA adjusted gross margin: 24.1%, up 100 bps YoY.
- Q4 adjusted operating earnings: $109 million; adjusted operating margin: 12.0%. Ex-IRA, adjusted operating earnings: $73 million, 8.0% margin (down 110 bps YoY, driven by telecom/broadband pause).
- Q4 EBITDA: $124 million; adjusted EBITDA margin: 13.7% (up 180 bps YoY).
- Full-year net sales: $3.6 billion, down 3% YoY.
- Full-year adjusted operating profit: $450 million, including $136 million IRA benefit.
- Adjusted diluted EPS (FY2024): $8.35; up 56% YoY (driven in part by IRA benefits).
- Q4 2024 EPS (adjusted): $2.08; adjusted EPS ex-IRA: $1.20 (down 15% YoY).
- Tax rate: Q4 effective tax rate 8.5% as-reported; 20.2% adjusted pre-IRA.
Cash Flow and Balance Sheet
- Net cash provided by operating activities: $136.78 million in Q4; full-year cash from operations $204 million of primary operating capital reduction.
- Free cash flow (FY2024): $109.35 million; CapEx (FY2024): $86 million; Q4 CapEx: $27 million.
- Cash and cash equivalents (as of 3/31/2024): $333.3 million; net debt: $511 million at year-end, representing ~1x leverage according to management disclosures.
- Leveraging dynamics: 1.0x EBITDA; later guidance contemplates ~2–3x target range with Bren-Tronics closing risk managed.
Segment Highlights
- Energy Systems (ES): Q4 revenue down 19% YoY to $369 million; adjusted operating earnings $17 million; margin 4.7% (down 180 bps YoY, up 90 bps sequentially). Management highlighted restructuring benefits and cost actions to reshape margin profile for ES, targeting 8–10% in a downcycle and 12–15% in an upcycle.
- Motive Power: Q4 revenue up 3% to $395 million; volume +5%; adjusted operating earnings $58 million; margin 14.7% (up 160 bps YoY).
- Specialty: Q4 revenue down 1% to $146 million; adjusted operating earnings $8.5 million; margin 5.8% (down 80 bps YoY) due to higher fixed cost absorption from capacity retooling. Management noted volumes up 11% sequentially and ongoing capacity expansion in Missouri to support growth in transportation and aerospace/defense end markets.
- New Ventures: Early-stage growth in fast charging and energy storage pipeline; Bren-Tronics acquisition announced post-quarter to bolster lithium and defense capabilities; integration planned after regulatory approvals.
Guidance and Outlook
- Q1 2025 guidance: Net sales $860–$900 million; adjusted diluted EPS $1.93–$2.03.
- FY2025 guidance: Net sales $3.675–$3.825 billion; adjusted diluted EPS $8.55–$8.95; pre-IRA tax rate 20–21%.
- Capex 2025: $100–$120 million.
- Key catalysts: continued volume growth in Motive Power and Specialty; telecom/broadband market normalization; margin expansion from Energy Systems (targeting higher-end margins after cost actions); Bren-Tronics close and synergy realization (lithium offerings, defense applications).
- IRA credits: Expected to contribute approximately $120–$160 million per year to after-tax performance; Bren-Tronics timing not included in 2025 guidance.
- Management acknowledged the telco/broadband cycle remains the primary uncertainty to revenue and timing, with a steady trajectory toward recovery through the year. They expect meaningful earnings expansion from margin-based actions and new revenue streams (fast charging, lithium), with data-center demand underpinning longer-term growth.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
910.72M
-8.00%
5.71%
Gross Profit
254.53M
3.44%
2.37%
Operating Income
97.22M
1.87%
4.99%
Net Income
60.91M
-7.64%
-20.02%
EPS
1.51
-6.21%
-19.68%
Key Financial Ratios
currentRatio
2.46
grossProfitMargin
27.9%
operatingProfitMargin
10.7%
netProfitMargin
6.69%
returnOnAssets
1.76%
returnOnEquity
3.47%
debtEquityRatio
0.52
operatingCashFlowPerShare
$3.39
freeCashFlowPerShare
$2.71
dividendPayoutRatio
14.9%
priceToBookRatio
2.14
priceEarningsRatio
15.41
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management themes and quotes from the Q4 2024 earnings call:
- Strategy and margin discipline: “EnerSys delivered a strong finish to the fiscal year… diversification of our end markets helping to offset some of the continued softness in telco/broadband spending.†(Dave Shaffer)
- IRA-driven margin uplift and cost actions: “adjusted gross margin improvement and adjusted operating earnings growth versus the prior fourth quarter by maintaining pricing on top of increased IRA benefits.â€; “cumulative actions are expected to result in $47 million of hard annualized cost savings to be realized in fiscal year 2025, an improvement of approximately $40 million over what was realized in fiscal year 2024.†(Dave Shaffer)
- Data-center growth and energy transition opportunity: “We are focused on meeting the increased needs of our data center customers, now 10% of total revenue with global demand accelerating… AI-fueled data center growth will see hyperscale capacity doubling every four years.†(Dave Shaffer)
- Bren-Tronics expansion and lithium roadmap: “subsequent to the end of the quarter, we were pleased to announce our agreement to acquire Bren-Tronics… accelerate EnerSys' progress in expanding our lithium product offerings… advancing towards our fiscal year 2027 targets.†(Dave Shaffer)
- Execution and integration readiness: “we will integrate Bren-Tronics in the coming months… day 1 post-close†(Dave Shaffer); “the integration process is seamless for our customers†(Andrea Funk).
- Supply chain and macro concerns: “telecom/broadband spend pause has been significant… revenue down about $200 million year-over-yearâ€; “net cash flow generation and working capital management remains a bright spot†(Andrea Funk, Tyler DiMatteo/Noah Kaye Q&A excerpts).
Adjusted earnings per share for the quarter of $2.08 was at the high end of our guidance range and revenue of $911 million was in line with our expectations, with the diversification of our end markets helping to offset some of the continued softness in telco/broadband spending.
— David Shaffer
This acquisition will accelerate EnerSys' progress in expanding our lithium product offerings, growing revenue and profitability while advancing towards our fiscal year 2027 targets.
— David Shaffer
Forward Guidance
Outlook and risk assessment:
- The company expects a gradual recovery in Energy Systems through 2025, with ES margins improving as cost-reduction actions mature and as pricing power is preserved during telecom/broadband capex recovery. The 2025 guidance assumes telco/broadband softness persists modestly but trends toward stabilization across the year.
- Motive Power and Specialty are expected to carry steady growth, with ongoing benefits from maintenance-free conversions and increased capacity absorption at the Missouri facility, supporting higher-margin mix as demand normalizes.
- Data-center demand and AI-driven growth underpin long-term opportunity, supported by EnerSys’ TPPL technology leadership and the DPX platform; Bren-Tronics is expected to accelerate lithium-based offerings, defense applications, and adjacent market reach, contributing to 2027 targets.
- IRA credits are a meaningful tailwind (anticipated $120–$160 million/year), though the mix and timing depend on volume and market mix; Bren-Tronics’ impact is not embedded in FY2025 guidance and will be incremental post-close.
- Risks to attainment include a slower-than-expected telco/broadband recovery, continued supply-chain volatility affecting key materials, and integration risks associated with Bren-Tronics. Key monitoring metrics: ES margin trajectory (8–10% downcycle; 12–15% upcycle), momentum in Motive Power after-market growth, and the pace of data-center/storage opportunities beyond batteries (thermal management, power electronics, and related services).
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
ENS Focus
27.95%
10.70%
3.47%
15.41%
AEIS
31.40%
8.49%
3.28%
27.08%
HUBB
33.90%
16.80%
5.94%
25.78%
AYI
47.30%
15.20%
5.00%
16.50%
KE
8.21%
4.54%
1.40%
17.91%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
EnerSys possesses a favorable long-term thesis anchored in accelerating data-center power needs, a rising installed base of maintenance-free motive power solutions, and a strategic push into lithium-based energy storage via Bren-Tronics. The company demonstrated disciplined margin management in Q4 2024, aided by IRA benefits and a robust cost-reduction program aimed at delivering 8–10% ES margins in a downcycle and 12–15% in an upcycle. The Bren-Tronics acquisition could unlock significant cross-selling opportunities and accelerate the domestic lithium strategy, though near-term execution risk and regulatory timing remain uncertainties. 2025 guidance implies a revenue range of $3.675–$3.825 billion and adjusted EPS of $8.55–$8.95, with CapEx of $100–$120 million and a pre-IRA tax rate of 20–21%, suggesting the company can sustain margin expansion while funding growth initiatives. Investors should monitor: (1) telco/broadband recovery timing, (2) Bren-Tronics integration progress and realized synergies, (3) progress of lithium plant development and related DOE funding, (4) IRA-related receipts and their timing, and (5) data-center end-market demand dynamics as AI and hyperscale deployments scale. Overall, the risk-reward appears favorable for value-oriented and growth-oriented investors who can tolerate cyclicality and integration risk, with a bias toward modest upside from the expansion of high-margin product lines and capital-light growth initiatives.
Key Investment Factors
Growth Potential
Growth drivers include: (1) data-center/AI-driven demand for reliable power and energy storage; EnerSys leadership in UPS TPPL solutions and emerging DPX small-cell platforms position it to capture last-mile capacity and efficiency upgrades; (2) Motive Power maintenance-free conversions continuing to expand share (25% of Q4 motive power sales; 22% full-year); (3) rapid lithium strategy via Bren-Tronics to broaden defense applications and accelerate domestic lithium capacity, with potential to diversify revenue and improve ROIC as integration progresses; (4) fast-charging storage revenue and new energy storage systems to diversify product mix and improve margin resilience; (5) IRA credits providing after-tax cash flow and earnings lift, supporting margin expansion and ROIC targets.
Profitability Risk
Key risks include: (1) telecom/broadband spending cycle risk and timing of recovery, which materially impacts ES revenue and margin; (2) integration risk and execution challenges related to Bren-Tronics and the ramp of lithium offerings; (3) ongoing supply-chain and macroeconomic volatility, including FX headwinds and potential commodity price volatility; (4) customer concentration in data-center and defense sectors could introduce cyclicality; (5) higher costs from capacity investments (Missouri manufacturing retooling) and potential capex overhang until capacity is fully loaded; (6) regulatory and tariff developments affecting lithium supply chain dynamics.
Financial Position
EnerSys maintains a strong liquidity and balance sheet posture: cash and cash equivalents of $333.3 million; net debt approx. $511 million at year-end, with leverage around 1.0x; total debt around $914 million; full-year CapEx guidance of $100–$120 million supports ongoing capacity investments. The company projects a modest increase in leverage in Q1 2025 due to Bren-Tronics outlay but expects net leverage to stay within the company’s target range. Free cash flow generation remains robust (FY2024 FCF ~$109 million) despite volume softness, underscoring financial flexibility to fund Bren-Tronics and other growth initiatives.
Strategic financing of cost-reduction initiatives, ongoing margin-improvement actions, and a clear plan to 2027 targets.
Weaknesses
Near-term sensitivity to telco/broadband CapEx cycles, leading to ES revenue volatility.
Energy Systems margin currently lower versus peers (Q4 ES margin 4.7%), requiring continued restructuring and investment to reach target levels.
Significant exposure to single large-adjacent opportunities (e.g., Bren-Tronics integration) introduces execution risk.
Opportunities
Bren-Tronics acquisition to broaden defense and lithium-based offerings; potential cross-sell with existing product lines.
Growing demand for data-center power, storage, and last-mile energy solutions; expansion of TPPL-based data-center products and new fast-charge/storage platforms.
Domestic lithium plant and DOE funding potential to reduce supply-chain risk and improve ROIC over the longer term.
IRA credits providing meaningful annual tax-advantaged earnings and cash flow uplift.
Threats
Persistent telecom/broadband spending pauses could delay margin normalization in Energy Systems.
Regulatory, tariff, and geopolitical factors affecting lithium and defense-related supply chains.
Macro uncertainty and potential supply-chain bottlenecks in critical components or battery materials.