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Why EnerSys Stock Dropped 11% on Thursday

By Rich Smith – Updated Apr 23, 2019 at 10:18AM

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The company's swing and an earnings miss in Q3 could soon be repeated.

What happened

Shares of Reading, Pennsylvania-based EnerSys (ENS -0.63%) closed the day down 10.8%, one day after the battery manufacturer reported fiscal Q3 2019 earnings that fell short of expectations.

Analysts had predicted that EnerSys would earn $1.25 per share on sales of $685.8 million in the quarter. Instead, EnerSys reported earnings of only $1.17 per share, pro forma, on sales of just $680 million.

Sparks surround a short-circuiting transformer.

Don't look now, but EnerSys stock just short-circuited. Image source: Getty Images.

So what

Actual GAAP earnings for the quarter were only $1.12 per share, which sounds bad, but was significantly better than the $0.61 per share that EnerSys lost in Q3 of fiscal 2018, a year ago, as a consequence of tax reform. Also, while sales missed estimates, they did grow 3% year over year.

CEO David Shaffer blamed a combination of weak sales to telecom customers who are hoarding cash to pay for "5G network upgrades" currently and "higher than projected freight costs in the quarter."

Check out the latest EnerSys earnings call transcript.

Now what

Looking forward, Shaffer predicted that sales of "DC power products" to telecom customers will pick up later this year. However, the CEO's guidance for pro forma profits of between $1.41 and $1.45 per share in fiscal Q4 (currently underway) nonetheless fell short of consensus analyst predictions for $1.50 per share in pro forma profit.

In other words, not only did EnerSys miss estimates in Q3 but it's planning to miss estimates again in Q4. No wonder investors are selling.

Rich Smith has no position 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.

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