EnerSys (ENS -14.73%) delivered its fiscal 2025 fourth-quarter results on May 21, reporting revenue up 7% year over year to $975 million and adjusted diluted EPS (excluding IRC 45X tax benefits) of $1.86 -- a record for the company. Management highlighted notable margin expansion across all segments and resilient order trends despite tariff headwinds. It also announced a leadership transition.

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 the impact of the IRC 45X federal tax credit for the domestic production of certain clean energy products) improved by 360 basis points to 11.1%. The motive power business achieved a segment-record 29% sales mix from maintenance-free products, and the specialty segment 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

Management said the company's direct tariff exposure was reduced to $92 million from $160 million following the May 12, 2025 U.S. administration update. With only 5% of its U.S. supply sourced from China and 80% compliant with USMCA or of domestic origin, 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 -- will mitigate both the 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 1.3 times EBITDA as of March 31, well below its target range of 2 to 3 times EBITDA, and free cash flow of $105 million. The company repurchased $40 million in shares in the quarter, and has approximately $200 million remaining on its buyback authorization. It's 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 its fiscal 2026 Q1, management is guiding for net sales of $830 million to $870 million and adjusted diluted EPS of $2.03 to $2.13 (including $35 million to $40 million of IRC 45X benefit), identifying the quarter as the likely trough for revenue and adjusted diluted EPS for the fiscal year. Quantitative guidance for FY2026 is suspended pending clarity on tariff policies. Management expects adjusted operating earnings growth, excluding 45X, to outpace revenue growth for the 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 fiscal Q1.