EnerSys Reports Record Q4 Earnings

EnerSys (NYSE:ENS) reported Q4 FY2025 results on May 21, 2025, with revenue rose 7% year over year to $975 million and adjusted diluted EPS, excluding IRC45x tax benefits, reached a record $1.86. The company highlighted notable margin expansion across all segments, resilient order trends despite tariff headwinds, and announced a leadership transition, positioning for continued strategic execution. Key takeaways center on margin gains, tariff mitigation, and strategic capital allocation opportunities catalyzed by a strong balance sheet.

Substantial Margin Expansion Across Diverse Business Segments

EnerSys’ adjusted gross margin rose 320 basis points year over year to 31.2%, and adjusted operating margin, excluding IRC45x, improved by 360 basis points to 11.1%. Motive Power achieved a segment-record 29% sales mix from maintenance-free products, and Specialty benefited from the Brentronics acquisition, which accounted for a 22% positive revenue impact.

"[A]djusted operating earnings were $152 million, up $43 million versus the prior year, with an adjusted operating margin of 15.6%. Excluding 45x benefits, adjusted operating earnings increased $5 million or 48% with an adjusted operating margin of 11.1% on 7% revenue growth driving a 360 basis point margin improvement year on year."
-- Andrea Funk, Executive Vice President and Chief Financial Officer

Consistent and broad-based margin gains validate operating leverage from structural cost actions and high-value product mix shifts, providing a defensible earnings base even amid sector volatility.

Disciplined and Adaptive Tariff Mitigation Playbook

Direct tariff exposure was reduced to $92 million from $160 million following the May 12, 2025 U.S. administration update. With only 5% of U.S. supply sourced from China and 80% compliant with USMCA or domestic origins, the company established a dedicated cross-functional task force for risk management and committed to full mitigation through pricing, sourcing, and OpEx reductions, leveraging a global manufacturing footprint and “in-region for-region” production strategy.

"At current tariff levels, our direct tariff exposure is approximately $92 million, down from $160 million prior to the May 12 U.S. administration update. We intend to fully offset this impact but expect some near-term friction in Q1 due to stranded tariffs that can't be passed on to customers."
-- Shawn O'Connell, President, Chief Operating Officer, and Incoming CEO

Sophisticated hedging and operational flexibility—underpinned by an established geographic supply chain strategy—mitigate both direct and secondary impacts, enabling stable cash flow and earnings protection through further tariff policy cycles.

Capital Allocation Optionality Supports Strategic Growth

EnerSys ended the year with $343 million in cash and cash equivalents, a credit agreement leverage ratio of 1.3x EBITDA as of March 31, 2025, well below its 2-3x target, and free cash flow of $105 million. The company repurchased $40 million in shares and has approximately $200 million remaining on its buyback authorization, while proactively seeking bolt-on acquisitions and maintaining capacity for opportunistic capital deployment.

"We continue to evaluate promising bolt-on acquisition opportunities like Brintronics, that align with our disciplined strategic and financial criteria and are focused on strengthening customer intimacy, expanding share of wallet with the leading positions in exciting end markets."
-- Andrea Funk, Executive Vice President and Chief Financial Officer

"Given the strong cash flow generation of our business, we have the opportunity to be more aggressive and pursue opportunistic share buyback activity particularly during these volatile market conditions."
-- Andrea Funk, Executive Vice President and Chief Financial Officer

This disciplined approach to leverage and capital allocation—balancing share repurchases with targeted M&A—enhances long-term value creation and provides ample headroom to absorb macro shocks or accelerate post-downturn growth.

Looking Ahead

For Q1 FY2026, management guides net sales of $830 million to $870 million and adjusted diluted EPS (non-GAAP) of $2.03 to $2.13 (including $35 million to $40 million of IRC45x benefit), identifying Q1 FY2026 as the likely trough for revenue and adjusted diluted EPS for the year. Full-year quantitative guidance for FY2026 is suspended pending clarity on reciprocal tariff policy. Management expects adjusted operating earnings growth, excluding 45x, to outpace revenue growth for the full year. Structural improvement initiatives, ongoing tariff response, and a robust order book—particularly in maintenance-free offerings, defense, and datacenter markets—are expected to support sequential recovery beyond Q1 FY2026.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.