Enersys (NYSE:ENS) executives highlighted record third-quarter earnings excluding 45X credits, strong free cash flow, and continued margin improvement efforts during the company’s fiscal Q3 2026 earnings call. Management also pointed to sustained strength in data centers and aerospace and defense (A&D), while acknowledging ongoing softness in Motive Power and Class 8 trucking.
Quarterly performance driven by price mix, cost actions, and FX
CEO Shawn O’Connell said the company delivered “strong earnings” in the third quarter, citing adjusted diluted EPS excluding 45X of $1.84, up 50% year-over-year and a third-quarter record. Net sales rose 1% to $919 million, with O’Connell noting that strong price mix and favorable foreign exchange offset lower volumes.
Management repeatedly cautioned that 45X credits affected year-over-year comparisons. Funk said 45X credits in the prior-year third quarter totaled $75 million, including a $36 million one-time catch-up, versus $35 million in the current quarter.
- Adjusted operating earnings: $142 million; operating margin 15.5%. Excluding 45X, adjusted operating earnings rose 34% year-over-year, with a record margin of 11.7%.
- Adjusted EBITDA: $160 million; margin 17.4%. Excluding 45X, adjusted EBITDA was $125 million, up 30% year-over-year, with a record margin of 13.6%.
- Adjusted EPS: $2.77 reported (down 11% year-over-year). Excluding 45X, adjusted EPS was $1.84.
Funk said OpEx improved as a result of cost reduction initiatives, with approximately $15 million in savings realized in Q3 and “similar savings” anticipated in Q4.
Strategic execution: restructuring, plant transition, services improvement
O’Connell said the company’s “energized strategic framework” is focused on optimizing the core business, invigorating the operating model, and accelerating growth. He stated that reduction-in-force actions announced in July are “now largely complete,” and the company plans to preserve those savings through disciplined cost management.
He also said the closure of the Monterrey battery plant is “substantially complete,” with manufacturing transitioned to Richmond, Kentucky, in November—one month earlier than planned. Management expects the benefits to begin around mid-fiscal 2027 as savings flow through inventory.
On services, O’Connell said the company has “turned the corner,” delivering revenue and margin expansion over the past two quarters. He attributed the improvement to execution enabled by new project management tools that provide real-time visibility and tighter project control.
End-market commentary: data centers and A&D strong; Motive and trucking still soft
Management described a mixed demand environment, with strong activity in several end markets offsetting tariff-sensitive softness. O’Connell said Q3 orders and backlog rose sequentially and year-over-year in all business segments except Motive Power and transportation.
Data centers: O’Connell said the data center business remains strong, with Q3 sales up 28% over the prior year. In Q&A, he said EnerSys holds over 50% market share in lead-acid data center solutions in the U.S. and is seeing demand for higher-density products, including TPPL. He also emphasized a growth opportunity in lithium UPS batteries, noting the company has not yet launched a lithium battery product into the data center marketplace and therefore has “0% market share” in lithium for greenfield data centers. O’Connell said customers are eager for EnerSys to participate due to product and service capabilities, but he cautioned against expecting a “hockey stick” ramp, describing a trial period (which he framed as roughly six months) followed by steady growth and long lead times for data center projects. He added that there are “really only one to two other credible lithium providers” in the space today.
Communications and other Energy Systems markets: O’Connell said customers are updating networks and planning upgrades, with momentum tied to replacing aging equipment and meeting demand for reliable data delivery and backup power. In Q&A, both O’Connell and Funk described quarter-to-quarter “choppiness” driven by project timing and customer budget cycles, but said the demand signals were positive. O’Connell also pointed to power utility applications—electric substations, switchgear, and control—saying that business was up 15% and that EnerSys holds over 50% market share in that area. Funk said communications was improving at a “measured pace,” and that the company likely would not return to fiscal 2024 levels in fiscal 2026, but was trending toward them with potential to exceed them in fiscal 2027.
Aerospace & Defense: O’Connell said A&D activity was robust, driven by geopolitics and rising defense budgets. Funk added detail in Q&A, stating the company’s A&D backlog was up 27% year-over-year and that munitions backlog was up 230% year-to-date, with a 29% CAGR since the business was acquired in fiscal 2019.
Motive Power (forklifts/logistics): O’Connell said forklift orders in December were up 40% versus the prior year as a leading indicator, but he said the company is not yet confident a firm recovery is underway, with EnerSys battery orders up only 1% sequentially. He said softness could continue into mid-fiscal 2027, pointing to a typical lag between truck orders and battery orders and describing the recovery as “choppy.” Funk said the company believes it is outperforming the market and is not losing share, citing industry indicators that were down low double digits while EnerSys volume was down high single digits.
Transportation (Class 8): Management said the Class 8 trucking market remains at the bottom of the cycle, but EnerSys is managing through pricing, cost improvements, and aftermarket growth. O’Connell described fleet aging and deferred investment as creating pent-up demand, including an anecdote about a large fleet operator that said it would need to order about 50,000 tractors simply to maintain its fleet without growth. He said EnerSys has ample capacity and highlighted improvements at its Missouri operation, including better productivity and reduced scrap.
Tariffs, cash flow, and capital returns
O’Connell said Enersys fully offset the tariffs realized in the quarter through supply chain actions and pricing strategies. He pegged total exposure at about 22% of U.S. sourcing, with estimated direct tariff exposure unchanged at around $70 million annualized for fiscal 2026.
The company generated operating cash flow of $185 million and free cash flow of $171 million, which Funk said rose $114 million versus the prior-year period. She attributed part of the increase to an expanded receivable purchasing agreement. As of December 28, 2025, EnerSys had $450 million in cash and cash equivalents and net debt of $743 million, with leverage at 1.2x EBITDA, below the company’s 2x–3x target range.
During the quarter, EnerSys repurchased 672,000 shares for $84 million at an average price of about $128 per share and paid $9.6 million in dividends. Funk said the company had approximately $931 million remaining on its buyback authorization as of February 3.
Guidance: Q4 outlook reflects mixed demand trends
For the fourth quarter of fiscal 2026, management guided to net sales of $960 million to $1.0 billion. The company expects adjusted diluted EPS of $2.95 to $3.05, including $37 million to $42 million of 45X benefits to cost of sales. Excluding 45X, adjusted diluted EPS is expected to be $1.91 to $2.01, which Funk said would be up about 10% year-over-year at the midpoint.
Funk reaffirmed full-year fiscal 2026 CapEx expectations of about $80 million and said the company continues to expect full-year adjusted operating earnings growth (excluding 45X) to outpace revenue growth, supported by OpEx savings and sustained price mix strength, despite still-soft Motive Power volumes.
About Enersys (NYSE:ENS)
Enersys, headquartered in Reading, Pennsylvania, is a global leader in stored energy solutions, specializing in manufacturing and distributing industrial batteries, battery chargers, power equipment, and related accessories. The company serves a diverse range of end markets, including telecommunications, data centers, medical, aerospace, defense, electric vehicle motive power, and utility outcomes. Its products are engineered to deliver critical reserve power and motive power applications across key infrastructure and industrial sectors.
The company’s product portfolio encompasses lead-acid batteries, lithium-ion energy storage systems, chargers, inverters, power management software, and a broad array of battery accessories.
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