EnerSys (ENS) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the EnerSys quarter two 2014 earnings conference call. My name's Annette and I will be your coordinator for today. At this time all participants are in a listen-only mode. Following the Company's remarks we will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions. (Operator Instructions). Please be advised this conference is being recorded for replay purposes. I will now turn the conference over to John Craig, Chairman, President, CEO of EnerSys. Please proceed, sir.

Annette?

Your line is open, John.

Annette, is everybody on the phone or do we have the (multiple speakers)

Everybody's on the line, John. Your line is open.

Thank you, Annette. Good morning, everybody. Sorry about the confusion here that we are having with our phone system this morning. So the delay we have -- I apologize for it.

As you know, last night we released our earnings and our guidance. I would like to remind everybody that we are going to be using some slides this morning and if you haven't pulled those up already you can go to our website at www.enersys.com and look under the Investor Relationship tab and you can follow through with the slides that we are going to cover. Before we get started and get into details on our second quarter results, I'm going to ask our CFO, Mike Schmidtlein, to cover information regarding forward-looking statements. So, Mike, could you take it from there, please?

Thank you, John, and good morning to everyone. As a reminder we will be presenting certain forward-looking statements on this call that are based on management's current expectations and are subject to uncertainties and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons. Our forward-looking statements are based on management's current views regarding future events and operating performance and are applicable only as of the dates of such statements. For a list of factors which could affect our future results, including our earnings estimates, see forward-looking statements included in item two, management's discussion and analysis of financial condition and results of operation set forth in our quarterly report on Form 10-Q for the quarter ended September 29, 2013, which was filed with the US Securities and Exchange Commission.

In addition we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information please see our Company's Form 8-K which includes our press release dated November 6, 2013, which is located on our website at www.EnerSys.com. Now let me turn it back to you, John.

Okay, Mike. Thank you very much. As you know, last night we released our second quarter financial results of $0.87 per share, which exceeded our guidance of $0.81 to $0.85. Reflected in our result was the sequential reduction in sales due to the vacation season in both Europe and United States.

As you may have seen last night, we also released our third quarter guidance of between $1.00 and $1.04 per share, which, if we achieve that level, (inaudible) that level, that would be the highest quarter in the Company's history. In the third quarter, as compared to the prior year, we will benefit from increased volume, the Purcell and Quallion acquisitions that we completed just recently and increased pricing to offset higher commodity costs. As you can see in slide three we reported quarterly sales of $568 million. Our gross profit of 25.4% has put us, once again, over our 25% target. Operating margins was a strong 11.1%, which is the 7th consecutive quarter of exceeding our 10% minimum target.

Now I want to turn your attention to slide four and update you on some recent actions we have taken to create additional shareholder value and grow our business and profitability to achieve our target of $4 billion in sales with a minimum of 10% operating earnings. In October we completed our $115 million acquisition of Purcell Systems, a leading manufacturer of thermal managed electronic equipment and battery cabinet enclosures. I'm excited about the synergistic business opportunities from this acquisition. First, we can now provide our customers with a fully integrated enclosed solution for their equipment deployment. Second, EnerSys' global sales and marketing reach provides us an opportunity for Purcell to expand its business across the world. Third, the majority of Purcell sales are in telecommunication and broadband markets.

EnerSys sales in the -- into the UPS, utility, rail and military offer Purcell additional opportunities for growth.

Last Friday we closed on our $30 million acquisition of Quallion, a manufacturer of lithium ion cells of batteries for high integrity applications and medical devices, defense, aviation and space. The Quallion acquisition is a great strategic fit with EnerSys. First, it enables EnerSys to have a complete control over the entire lithium cell and battery production process. We can manufacture our own lithium ion cells, which is very important to most of our customers. Second, with both Quallion and our ABSL space business, EnerSys is now a leading provider of battery technology to the global space market.

Third, Quallion's leadership position in lithium ion batteries for implantable and external medical devices expands EnerSys lithium product offerings into key strategic high growth markets. We remain active on several additional acquisition opportunities, some of which we anticipate completing for the end of this fiscal year. Also, we continue to execute our strategic plan of getting our EMEA operations or regions to a minimum of 10% operating earnings. Last week our Board of Directors approved another quarterly dividend of $0.125 per share, which is payable in December.

In addition, our current year stock buyback program totaling $38 million at the end of October.

Now commenting on our current business activities. Order rates for motor power -- Reserve Power and aerospace and defense product lines are up year-over-year. The Americas and Asian regions are enjoying strong year-over-year orders growth while EMEA region has experienced modest growth.

In closing, our vision of EnerSys growing to $4 billion in annual revenue is certainly beginning to take shape thanks to our over 10,000 employees worldwide and the recent acquisitions. We welcome the Purcell and Quallion employees to the EnerSys family and look forward to us jointly growing EnerSys shareholder value.

I previously stated during our last investor call that fiscal 2014 second half earnings would be stronger than our first half. We still retain our strong earnings view for the second half as evidenced by our third quarter mid-point guidance of $1.02 per share. Now, Mike, I'd like to ask you to pick up from there and get into a little bit more details on our results and our guidance.

Thanks, John. For those of you following along on our webcast, I'm starting with slide five. Our second quarter net sales increased 3% over the prior year to $569 million from 1% increases in volume, price and currency translation. On a regional basis, our sales in Asia decreased 7% in the second quarter to $58 million while Europe's second quarter net sales increased 4% to $223 million and the Americas were up 4% to $288 million. In the Americas, 4% organic volume was the reason for the increase with 1% pricing negated by an unfavorable currency impact of 1%. In Asia, volume declined 3% due to the completion of a large order last year from a customer as well as an unfavorable currency impact of 3% along with lower pricing of 1%.

Europe had a 4% currency gain and 1% higher pricing, partially offset by a 1% volume decline. On a product line basis, net sales for Motive Power were up 7% to $289 million while Reserve Power decreased 2% to $280 million. Motive Power enjoyed a 6% volume gain and a 1% favorable currency while Reserve Power incurred a 3% volume drop offset by 1% in higher pricing.

Please now refer to slide six. On a sequential quarterly basis second quarter net sales were down 5% to the first quarter, due primarily to lower organic volume. Asia was up 14% while the Americas region was down 9% and Europe declined 3% during their normal holiday months. On a product line basis Reserve Power and Motive Power lines were both down 5%.

Now, a few comments about our adjusted consolidated earnings performance. As you know, we utilize certain non-GAAP measures in analyzing our Company's operating performance specifically excluding highlighted items. According, my following comments concerning operating earnings and my later comments concerning diluted earnings per share exclude all highlighted items. Please refer to our Company's Form 8-K, which includes our press release dated November 6, 2013, for details concerning these highlighted items.

Please now turn to slide seven. On a year-over-year quarterly basis, adjusted consolidated operating earnings decreased approximately $1 million with the operating margin down 50 basis points. On a sequential basis, our second quarter operating earnings were flat but margins improved on lower volume and commodity costs.

From an historical perspective, operating earnings remain strong at 11.1% of sales. The declines from the prior year reflect higher commodity costs. Our results when compared to Q1 are encouraging as our second fiscal quarter is traditionally our weakest. Operating expenses, which have increased in the second quarter over the prior year and prior quarter rates, are expected to normalize in our second half with full year expenses comparable to prior year when measured as a percentage of sales.

Our Americas business segment achieved an operating earnings percentage of 15.3% versus 15.8% in the second quarter of last year, primarily from the impact of higher commodity costs. On a sequential basis, Americas second quarter increased 210 basis points from the 13.2% margin posted in the first quarter as a result of receiving commodity costs despite lower volume.

Europe's operating earnings percentage of 6.8% was above last year's second quarter of 6.5% but slightly below the first quarter rate of 7% due to lower volume. The operating earnings percentage in our Asia business segment decreased in the second quarter of this year to 7.1% from 10.6% in the second quarter of last year and from 10.3% in the prior quarter. Asia's operating earnings were $4.1 million for the second quarter reflecting 7% lower revenue from the prior year as discussed earlier. Please move to slide eight.

As previously noted on slide seven our second quarter adjusted consolidated operating earnings of $63 million was a decrease of 2% in comparison to the prior year with the operating margin declining 50 basis points to 11.1%. Excluding from our adjusted operating earnings for the second quarter was approximately $2.2 million of pre-tax highlighted items. Our adjusted consolidated net earnings of $43 million decreased 4% from the prior year to 7.6% of sales for a 50 basis point decline with the booked tax rate decreasing to 27%. EPS decreased 5% to $0.87 on lower net earnings and higher shares outstanding. The higher average diluted shares result primarily from our convertible debt which becomes dilutive when our shares rise above $40.60.

This convertible debt dilution added over 1 million shares to our EPS calculation and decreased EPS by $0.02 in our second quarter. Our adjusted effective income tax rate of 27% for the second quarter was slightly lower than the prior quarter. We believe our tax rate for the third quarter of fiscal 2014 will be between 26% and 29% and for the full year we expect a 28% rate on our as-adjusted earnings. Our as-reported rate for the full year will be positively impacted next quarter by an item which I will describe later.

Please now turn to slides nine and ten. As usual, we have provided information on a year-to-date basis similar to that of our second quarter on the prior pages. These two pages are for your reference and I don't intend to cover the year-to-date results.

Please now turn to slide 11. Now, some brief comments about our financial position and cash flow results. Our balance sheet remains very strong. We now have $273 million on hand in cash and short term investments as of September 29, 2013, with over $480 million undrawn on our credit facilities around the world. We generated over $91 million in cash from operations in our first two quarters of fiscal 2014. Even after $45 million of share buybacks and dividends through the second quarter our leverage ratio remains near zero and, as John mentioned and as noted in our subsequent events footnote to the 10-Q and our press release recently announced, we recently announced the acquisition of two US-based businesses for a combined price of $150 million. With these acquisitions and nearly $50 million of authorized share buybacks we expect our leverage ratio will still remain under 1.0 times.

Capital expenditures were $25 million for the first half of fiscal 2014 compared to $27 million in fiscal 2013. We expect to generate adjusted diluted net earnings per share of between $1.00 and $1.04 in our third quarter fiscal 2014, which excludes an expected net credit of $0.10 per share net of our restructuring programs and acquisition activities which will result from the removal of a valuation allowance on our deferred tax asset created by German net operating losses accumulated prior to our ownership in 2002. This guidance reflects slightly over $0.03 of dilution caused by our convertible debt's conversion premium, which I previously mentioned becomes dilutive when our shares exceed $40.60. At current share prices this will add up to 1.6 million shares to our diluted shares outstanding making our expected average diluted shares outstanding for our second half to be approximately 49.75 million shares net of our expected share buybacks.

We anticipate our gross profit rate in the third fiscal quarter to remain in the 25% range as a result of lower lead costs. We expect to sustain our goal of 25% for our second half of fiscal 2014. In conclusion, we believe we remain well positioned to take advantage of future opportunities. Now, let me turn the call back to John.

Thank you, Mike. Annette, I'd like to now open the lines up for questions.

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. (Operator Instructions). Your questions will be told in the order they are received. Please stand by for your first question. The first question comes from the line of Tim Mulrooney of William Blair. Please proceed.

Good morning, guys.

Good morning.

Good morning.

I was wondering if you could share with us any insight on how your Motive business is doing recently, and maybe any update on order trends there?

Yes. The Motive Power business orders are picking up quite nicely. When you take a look at worldwide on orders, the four week average orders -- I'm looking at the four week average on a per day basis compared to prior year is actually up 22.6%. So we are really starting to see things come back quite nicely in that area on orders.

Wow. Okay. Thank you. And just one more. I was wondering if you could talk a little bit about that 3% decline we saw in the reserve business. Is that more a function of difficult comparisons, or are you seeing any weakness in any particular market like telecom or UPS? Thank you.

Well, as you know, and as we stated in the past, the Reserve Power business can be a rather lumpy business. It's a -- when the telecoms are buying a lot of batteries that -- in one quarter, the next quarter it could be down. But if you take a look at -- and the other thing is this was our second quarter. So if you look at the specific numbers on it, our first quarter Reserve Power globally committed $292 million and was down to $280 million. So about $12 million quarter to quarter. But when you look at what is going to happen in the third quarter it is popping right back up again. The order pattern is very strong that we are seeing coming in right now.

The order pattern in total on Reserve Power globally is up about 28% looking at a four week average and, as we talked before, in Europe, in the summer months and, to a lesser extent, the United States with the vacations and holidays, things -- sales drop right off.

If you take a look -- let me give you an example of that. Our first quarter we came in at $597 million; we dropped down to $569 million. But if you look at last year it was $593 million down to $554 million. That is first quarter to second quarter. The pattern repeats itself almost every year so I'm not at all concerned about what we are seeing in the Reserve Power drop down in Q2 and, again, I'll emphasize when you take a look, worldwide orders on a four week average compared to last year are up about 28%. Annette, next question, please.

The next line of question comes from the line of William Bremer of Maxim Group. Please proceed.

Good morning, John. How are you?

Bill, I'm doing well. How about yourself?

Okay, gentlemen, okay. Let's first start off with Thin Plate Pure Lead. Where are they in terms of the levels and in terms of your underlying capacity there?

Capacity wise we are in very good shape. As you know about a year, year and a half ago we invested about $60 million so that we wouldn't be in the situation that we couldn't deliver products to our customers that wanted them on a timely manner. So, capacity wise, we are in very good shape. Our Newport, Wales, plant is running at near capacity. Our Warrensburg plant is a little less and we do have some capability now in our Ross plant -- Ross [trans] plant. So we are in good shape on that area.

Okay. Would you say backlog is close to near record levels there?

Yes, it is.

Okay, great. That's good to hear. Now, you touched on some of your end markets earlier, specifically telecom. Can you give us an update? What is surprising you, at this point, in terms of end markets and are you -- and then if we touch a little bit more on telecom what are you seeing in terms of the 3G to 4G rollout globally at this time?

Well, I'll start with the US. The 3G to 4G rollout is near completion as they are adding, they are adding more sites in -- but I think that when you look at the US, we are way ahead of the rest of the world on 4G.

When you look at and you ask what surprises me look at China Mobile. That is a surprise to me. When I learned that they have over 740 million subscribers. That's twice the population -- more than twice the population of the United States. They are going to spend $32 billion to get 4G up and running. They're anticipating it will be in place in China in the second half of calendar 2014. We expect that we are going to see some real nice upside take place there.

On the downside, and downside, slightly upside, I'm surprised that Europe has taken so long to go from 3G to 4G. They're just starting right now. Disappointed it has taken this long but it is starting to take off there. In some of the major cities you are seeing 4G over there. I think once the commission, the EU Commission, and the telecom companies come to an agreement on things, on how the telecom companies can finance to go to 4G, when that agreement is reached, I think you're going to see some very nice upside with EnerSys batteries being sold into that market.

Okay. Just one little quick follow-up on that front, specifically on the China market. When do you think you will start seeing those type of orders come through if they're expecting more of a second half 2014 build? How early will you see that contribution?

Right now, it's starting. And it is in our forecast, the $1.02 mid-point forecast that we have. Asia, we expect to see some better results in the third quarter than the second quarter and, in part, it is because of what we just talked about on China Mobile. They are ordering these things and we are starting to see the order pattern pick up.

Nice quarter, guys. Great consistency. Thank you.

Thank you.

Thank you. The next line of question comes from Elaine Kwei of Jefferies. Please proceed.

Hi, John and Mike. Congrats on another great quarter again.

Thank you very much.

Thanks, Elaine.

Actually, just a follow-up on that question regarding China. What should we think about in terms of the sales, the margin trajectory there in Asia? What do we need to see to get back to those kind of double digit margins that you've had in Asia in the past?

Well, let's talk about the quarter that just ended here. And when you take a look at Asia if you look at our first quarter we were at 10.3% operating earnings then we dropped down to 7.1% in the second quarter. If you get behind the numbers and you look at it I'm not concerned about the operations side but there were two things that happened. One is FX and the other is a bad debt provision. If you took those two things out we would be north of 10% right now. The bad debt provision is something we put in place conservative. Mike and his team, Mike Schmidtlein and his team, are conservative accountants and I'm very happy to say that. And they put a provision in place.

I believe, and according to the president of our Asian operations, there is a strong chance we might be able to pull some of that back. When you look at going forward, and what I just mentioned about China Mobile and about other things happening there, I think that you're going to see -- I hope to see a very strong third quarter. Much better third quarter than second quarter. Again, from an operations standpoint I'm not disappointed in Asia. When I first looked at the numbers at 10.3% going to 7.1% I was very concerned about it. But I got behind it and look, it's FX and that bad debt provision they put in place. You strip those out, we are running pretty well.

All right. Sounds great. And in terms of the -- could you also give us an update on the capacity expansion there in China and how that is proceeding with the plants and are you starting to -- it sounds like the timing could work out very well with this 4G buildout as well?

Yes. It is working out very well with us. I think the one thing that I would say with it is the volume ramped up faster in our Chongqing plant than we anticipated. We are putting additional equipment online. Just to back up, you remember when we said we were building a factory capable of supporting about $150 million in revenue, and that is the factory size. But, obviously, we are not going to fill that factory with all of the equipment day one. As the volume comes we will add more equipment. I would say we got slightly behind in adding the equipment because the order pattern came in strong for us.

We are keeping up with it but we're working some overtime and some other things to keep customers satisfied with it. We are in the process of putting more equipment in place. I would say that that facility is probably running about 40% or thereabouts, 35% to 40%, of the $150 million capacity. But it is running near 100% of the equipment capacity. So, very pleased at what I'm seeing there.

The other plant is the Gaoyou plant. On the Gaoyou plant, which is more of a Motive Power plant, we have broke ground on that and we are just in construction phase of it right now.

Okay. That's really helpful. Sounds like a great problem to have with the orders. And just quickly on the acquisitions, is Purcell fully integrated now into results and would you say Quallion is a little more of a technology play or is there opportunity for some pretty meaningful revenue growth as well?

Well, let's take Purcell. Purcell is -- our guys have done an excellent job of integrating in the company. In fact, I'm very impressed with the management team at Purcell and very impressed with the management team at EnerSys at how the two groups got together and barriers were knocked out day one. I mean we had the president of our South American operation on the phone with the general manager of Purcell, talking about business growth there. There is meetings going to be taking place across Europe. In fact, there's one later this month in Stockholm at a senior level, how do we expand Purcell into Europe? The integration has been fantastic with that.

Now, we're going to keep Purcell as a separate Company. They won't be called EnerSys. And the reason for that is we want to be selling cabinets, not only to put EnerSys batteries in but if a customer wants to buy our competitor's battery, if they do that, we don't want to exclude Purcell from being the cabinet provider. So I think there is a lot of great opportunities and upside in that area.

Now, going to Quallion, your question -- I'd say that's both a -- first off, Quallion is accretive to our EnerSys P&L. The other thing about Quallion, there's several things that are very important. Number one is that we are now a provider that, from the raw materials all the way through to the final battery, we are the only Company that I know of in the world that can actually do that. Not only build cells, they put them in batteries. But we actually manufacture the raw material going into the battery itself. It's something that the United States government helped invest into with Title III money.

It's something that we've had numerous conversations with government officials about buying Quallion over the years and I think we've got some very great growth opportunities with Quallion and our ABSL operation in Longmont, Colorado, and also with our operation in the UK.

The next area we get into, which I think is a very exciting area for growth, I think we're going to see a lot more batteries that are going to be deployed in the medical field, both implantable and external batteries for medical devices. Roughly 30% of the revenue of Quallion is already selling in to that field. And during our due diligence and talking to major customers that buy those type of batteries, the growth projections that they're seeing are big going forward. So I think we've got a nice opportunity to grow in aerospace and defense. I think we've got a great opportunity to grow in medical with that acquisition.

Sounds great. Thank you so much, John.

(Operator Instructions). Thank you. And the next line of question comes from Jeff Osborne from Stifel. Please go ahead.

Congratulations, again, on the strong results. I was just wondering, John, if you can give us an update on the Green Mountain Power trial with OptiGrid? I think that's been up and running about a year. Didn't hear it mentioned on the call. But that is part one of the question. Part two is just, are you starting to see any IRFQ or RFP activity out of California given the state legislation that they have passed there?

I can't answer the specific question on California because I don't know. All I know on it is, for sure, we've got more orders and activity, sorry, RFQs out there. It is a lot of interest in it.

To date we've sold one unit. Everything is working well on it. This is one of these things where it takes a long time for the utility companies and others to take it, really evaluate this and decide if they going to go to it. I would say that there is nobody out there selling big large systems right now that -- of any significant volume. What I'm referring to is someone had said that that market could be $100 billion some day. Today, the order activity coming in globally on that, it's hard to believe that it will ever get to $100 billion.

Now, that being said, as I said, the interest is very high. A lot of quote activity. A lot of people coming and looking at the systems but we're just going to have to wait and see how this thing takes off. This goes back to the thing we keep talking on risk and reward. For us to take and build the system to try it out was about [$500,000.00]. And, if you look at -- and, again, some say it is $100 billion market. Well, make it 10% of that, it's a $10 billion market, something that you potentially could have a lot of upside in the future. I don't anticipate in the next year you're going to see major orders on that. That's an investment for the future. Mike, do you want to pick up on that?

Yes. I was going to add, Jeff, I think as we looked at other opportunities in terms of acquisitions and just as we look at how we can expand OptiGrid we've become more convinced that that micro grid storage application has real traction and it is going to grow. So we are very bullish on that.

Excellent. Just a couple other housekeeping questions. On the Quallion acquisition, maybe I misinterpreted the press release, but I was thinking that you were potentially going to move some of your manufacturing from Germany to their facility, which I believe is in California. A, is that correct? And then B, what is the timing on that?

No. I don't think we will be moving production operations. They [co-opted] -- the operations that we have in Germany, it is a different lithium technology. The thing that we really liked about Quallion, and everything that we've heard from customers, it is superior to everything else that's being -- that's out there. What they have developed, and the history behind that company was they developed the lithium ion battery mainly for the medical devices and then as an offshoot of that, they really got into the aerospace and defense area. So, no, I don't anticipate that we'll be moving operations at all on that from Europe to here.

(multiple speakers) There might be some leverage.

The facility in Germany is larger. Larger format product is being made in Germany and Quallion cells are of the smaller format size so we would not envision combining those operations.

Okay. And then is the accretion on Purcell and Quallion kind of right away or is there a six to nine month lag? How are you thinking about modeling those? I know they're relatively minor to the model itself but so we have some clarity on that would be helpful.

I usually don't break these things out or like to break them out but since this is the first quarter I'm going to answer your question specifically on it. In this particular quarter, third quarter, we're going to be looking at about $0.04 accretion due to those two acquisitions.

Okay. Great to hear. Last question just for Mike. How should we be thinking about CapEx for the fiscal year and any preliminary plans for the upcoming fiscal year would be helpful.

Well, I think you are going to see this year, we're fairly comparable. I think we were at $24 million through the turn, halfway through, and I would expect that we're going to be around $50 million to $55 million, which is pretty normal for us. Some years we are in the 60s but that is typically when we are adding some of these plant expansions. When Chongqing was being finished it was in the 60s. Gaoyou, when it's in some of the later stages, it will probably cause next year to be in the 60s. But, typically, I would say the $50 million range is pretty normal for us and that's where I'd expect it this year.

Okay, thanks. And I apologize, one real quick one here on the margins, nice improvement. You mentioned the lead as a part of the rationale in mix. Was there any changes on the Thin Plate Pure Lead or other premium products as a percentage of the total? I think in the past you've talked about 30%-ish. Is that (multiple speakers)

It's running in the same range.

Okay. Thank you.

Yes. One point of clarity. I gave a number that wasn't quite correct here earlier when I talked about Motive Power. I mentioned that Motive Power was up 23%. That's 23% in the United States. Globally it is up 10% on Motive Power. Annette, next question, please.

Thank you. The next question comes from Michael Gallo of CL King. Please go ahead.

Good morning. Congratulations, again, on another strong quarter.

Thank you.

John, could you just give us your view on the Purcell acquisition, the size of the global market? My understanding of Purcell is primarily a domestic business. How big do you think this can be? It seems that there's a tremendous amount of synergy with your existing customer base and being able to really bundle the complete end to end solution. So I was wondering, as we look out three to five years, what your visions for this business are? Thank you.

Michael, when we put the model together on this thing we looked at it as -- decided on what the price we're going to pay for it and, to be blunt about it, what we looked at is going to be primarily a US operation. And [putting] a conservative model together because -- and then we looked at how big do we think we really can grow and the answer is we don't know. We don't know for sure because Purcell has not been this strong outside the United States. But I will tell you this, the day the press release went out, five major companies in Europe called our Vice President in our Reserve Power division and said we are excited about this, we want to talk to you about cabinets. And these are big companies.

So I mentioned that we have a meeting in Stockholm coming up here at the end of this month. And it's going to be how do we take Purcell and go to the next level and really put it in Europe. But on our financial models, as I said, we didn't put a lot in there. We need to sort that out, okay. And I can't give you exact numbers on it because I don't know.

But I'll tell you this. What I'm seeing and hearing on the interest level, and it's hard to quantify that, of course, but the hearsay on it, I think it could get probably the same size in, or close to the same size, in Europe as it is in the United States. But we'll have to see. It is too early to tell on that. But even if it just grows at the rates that we put in our model it's still a great investment for us. But I think there is a lot of upside that we haven't put into the model yet. Mike, do you want to pick up on that, too?

Well, I was going to say you find enclosures nearly everywhere. And I think with our global reach and the diversification over the products and markets that we touch that we really see this as a product line that we can take and sell as an integral part of our portfolio in a lot of different applications.

Yes. And there's another part to this thing, which is very exciting. Purcell sells the cabinet, they hire a third-party to go and install the cabinet. They farm all that out. We have restructured our Reserve Power surface group, meaning we are putting an office together where we can handle all of the logistics and everything. Purcell, day one, has started to work with our Reserve Power team about doing that installation. So I think there's some upside to the Reserve Power group with that.

Second thing is Purcell has not been selling anything of significance into the military, into the rail business and we do a lot of business in the military and in the rail business also. So there is upside there. Third thing I mentioned about South America. Fourth thing is even in China there's an interest or in the Asia business. And I also mentioned in Europe. We're going to have to start this out but my gut tells me there's much more upside to this thing than we put in our financial model.

Yes. And then, John, just a clarification. I know you clarified the Motive orders to being up 10% globally and 22% in the U.S. The number you gave on Reserve up 28%. Was that the U.S. number? And if it is, what was the global number?

The U.S. number on Reserve Power is up 15.5%. Those are orders over the last four weeks. Globally it's up 28% or 27.5% to be exact.

Okay. So the 28% was globally. Thanks very much.

That's correct.

Okay.

Thank you. Thank you for all your questions, ladies and gentlemen. That concludes the question and answer session. I would now like to turn the conference over to John Craig for closing remarks. Thank you.

Thank you, everybody, for calling in. We appreciate your interest in our Company and I can assure you that the 10,000 employees of EnerSys are doing everything we possibly can to continue to increase shareholder value. We don't hide it all that we're headed towards the $4 billion. We don't hide it at all that we are hitting Europe to get Europe to 10% operating earnings, which is a target that we've shot for for a long time, and it's eluded us. I believe that we will get there in the not too distant future. I'm very excited about everything going on right now and I think we're going to continue to see good performance coming out of our Company. So, again, thank you for calling in. Everyone have a good day.

Thank you. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.