0001628280-25-049582
SEC filingEnerSys delivered 7.7% net sales growth in Q2 FY2026 driven by Energy Systems and Specialty segments, while operating margin contracted 150 bps due to higher restructuring charges and operating expenses.
EnerSys reported net sales of $951.3 million for the second quarter of fiscal 2026, a 7.7% increase compared to $883.7 million in the prior year period. This growth was attributed to a 3% increase in organic volume, a 3% increase in pricing, a 1% contribution from acquisitions, and a 1% favorable impact from foreign currency translation. Gross profit increased 9.9% to $277.2 million, with gross margin expanding 60 basis points to 29.1%, reflecting benefits from cost reduction initiatives and favorable price/mix, partially offset by higher freight and materials costs.
Despite top-line growth and gross margin expansion, operating earnings decreased 7.4% to $92.0 million, and operating margin contracted 150 basis points to 9.7%. This decline was primarily driven by a significant increase in restructuring and other exit charges, which rose to $21.1 million from $2.2 million in the prior year, largely related to a newly announced workforce reduction plan. Operating expenses also increased as a percentage of sales, partly due to $10.2 million in accelerated stock compensation expense recognized in the first half of the fiscal year. Earnings before income taxes decreased 9.2% to $76.4 million.
Performance varied significantly across the Company's three reporting segments. The Energy Systems segment was the primary growth driver, with net sales increasing 13.8% to $434.7 million. This was fueled by a 10% increase in organic volume, driven by robust demand from data center and industrial customers and a recovery in communications spending. Segment operating earnings increased 37.8%, and operating margin improved 130 basis points to 7.7%.
The Specialty segment also delivered strong results, with net sales up 16.3% to $156.9 million. Growth was balanced between a 7% increase from acquisitions (primarily Bren-Tronics) and a 7% increase in organic volume, concentrated in Aerospace and Defense. Segment operating earnings nearly doubled, and operating margin expanded 380 basis points to 9.2%.
Conversely, the Motive Power segment experienced a 1.9% decline in net sales to $359.7 million, as a 6% decrease in organic volume, attributed to macro uncertainty causing customer project pauses, was partially offset by a 2% increase in pricing. Segment operating earnings decreased 16.7%, and operating margin contracted 240 basis points to 13.3%.
Management is executing a significant strategic restructuring plan announced on July 22, 2025, to better align resources with business priorities. The plan involves an approximately 11% reduction in the non-production global workforce and is expected to generate approximately $80 million in annualized savings, with $30 million to $35 million expected to be realized in fiscal 2026. The Company is also assessing the impact of evolving U.S. tariffs and believes its international structure will help mitigate some financial impacts. Market outlooks are mixed, with strong demand cycles noted in data centers and defense, while the forklift and Class 8 truck markets face uncertainty from tariff policy.
As of September 28, 2025, EnerSys reported cash and cash equivalents of $388.6 million, up from $343.1 million at March 31, 2025. Total assets stood at $4.07 billion. The company's debt structure includes $600.0 million in Senior Notes (comprising $300.0 million of 4.375% notes due 2027 and $300.0 million of 6.625% notes due 2032) and $592.6 million drawn on the newly amended $1.0 billion revolving credit facility. Short-term debt totaled $29.3 million. The Sixth Amended Credit Facility, entered into during the quarter, upsized the revolver by $150 million and extended the maturity to September 30, 2030. Available and undrawn lines of credit were $489.3 million. The company also maintains a Receivables Purchase Agreement allowing for the sale of up to $150.0 million in trade receivables. Inventory increased to $804.9 million from $740.0 million at fiscal year-end, driven by raw materials ($312.8M), work-in-process ($132.6M), and finished goods ($359.6M).
The aggregate transaction price allocated to unsatisfied performance obligations was $175.2 million as of September 28, 2025. Of this amount, $78.2 million is expected to be recognized as revenue in fiscal 2026, $70.8 million in fiscal 2027, $25.9 million in fiscal 2028, and $0.3 million in fiscal 2029. Current and non-current contract liabilities were $30.1 million and $0.6 million, respectively. Contract assets representing work completed but not billed were $88.6 million. The company also hedged the price to purchase approximately 104.4 million pounds of lead for a total purchase price of $95.2 million. Foreign currency forward contracts with a notional value of $54.7 million were outstanding to hedge foreign currency exposures.
During the six months ended September 28, 2025, EnerSys deployed significant capital toward shareholder returns. The company repurchased 2,375,741 shares of common stock for $217.8 million, reducing shares outstanding to 37,200,154. Dividends paid totaled $18.9 million, with the quarterly dividend increased to $0.2625 per share from $0.24. Capital expenditures were $53.9 million, with Specialty ($17.2M), Energy Systems ($21.7M), and Motive Power ($13.2M) as primary recipients. Net debt increased, with $467.6 million in revolver borrowings partially offset by $155.0 million in revolver repayments and $210.0 million in term loan repayments. Debt issuance costs of $3.3 million were capitalized for the Sixth Amended Credit Facility.
The company operates four segments: Energy Systems, Motive Power, Specialty, and New Ventures (included in Corporate). For the six months ended September 28, 2025, Energy Systems generated net sales of $826.0 million with segment operating earnings of $28.3 million (3.4% margin). Motive Power contributed $708.8 million in sales and $74.0 million in operating earnings (10.4% margin). Specialty reported $305.4 million in sales and $12.2 million in operating earnings (4.0% margin). Corporate and other, which includes IRC 45X production tax credits and New Ventures start-up costs, contributed $63.9 million to operating earnings. Restructuring charges were significant across all segments, with Motive Power bearing the largest impact at $14.1 million, primarily related to the Monterrey, Mexico facility closure and the global workforce reduction plan.
EnerSys delivered robust cash flow generation for the six months ended September 28, 2025, with operating cash flow of $219.0 million, a nearly fivefold increase from $44.0 million in the prior-year period. This performance significantly exceeded net earnings of $125.9 million, indicating high-quality earnings with strong cash conversion. The primary driver was a substantial release of working capital, notably a $43.7 million decrease in accounts receivable and a $69.5 million decrease in prepaid and other current assets, partially offset by a $48.7 million inventory build and a $34.7 million decrease in accounts payable. Non-cash adjustments, including $54.9 million in depreciation and amortization and $22.0 million in stock-based compensation, also contributed positively.
Capital expenditures were $53.9 million, down from $66.5 million in the prior year, representing a manageable 25% of operating cash flow. The company deployed significant capital toward shareholder returns, repurchasing $217.8 million in treasury stock (up from $75.2 million) and paying $18.9 million in dividends. Combined capital returns of $236.7 million exceeded operating cash flow, with the shortfall funded by $312.6 million in net revolver borrowings, though the company also repaid $210.0 million in term loans. The net effect was a $128.2 million use of cash in financing activities.
The dramatic improvement in operating cash flow was heavily reliant on working capital swings, particularly the $69.5 million reduction in prepaid and other current assets, which may not recur at the same magnitude. The company also recorded a $619,000 write-off of assets related to exit activities. While free cash flow (operating cash flow less capex) was a healthy $165.1 million, it did not fully cover the $236.7 million returned to shareholders, resulting in a net draw on debt. The $17.1 million positive effect of exchange rate changes also provided a modest tailwind to the overall $45.5 million increase in cash and equivalents.