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‘Decade of Darkness’ for California Spurs Generator Windfall

Brian Eckhouse and Nic Querolo
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‘Decade of Darkness’ for California Spurs Generator Windfall

(Bloomberg) -- A “decade of darkness” in California is offering a huge opportunity for the sale of generators that keep the lights on when the power grid goes down.

That’s the view of Aaron Jagdfeld, chief executive officer of Generac Holdings Inc., the Wisconsin-based maker of generators. Jagdfeld cited a comment by PG&E Corp.’s CEO earlier this month that it could take ten years to shore up its grid enough to ratchet down the power shutoffs it’s using to reduce the chances its equipment will ignite wildfires during a wind storm.

The bottom line for Generac: $100 million to $200 million of annual revenue, perhaps as soon as 2022, Jagdfeld said in an interview Friday in New York. While California, with its generally mild climate, wasn’t a big market for Generac in the past, the company is now gearing up a sales force and a marketing push to make it one in the future.

“It is a situation where we see a long-term upside for building awareness for our products,” Jagdfeld said. Generac expects California will get about $1 million of the $10 million spent this year on infomercials, he said, and will open an office in Sacramento for training, inventory and retail next year.

Generac’s shares hit an all-time high Monday. The company was up 4.3% to $94.58 at 12:28 p.m. in New York.

There are some issues, he said. The state’s tough regulatory profile, for instance, means that some of Generac’s present equipment may not meet environmental guidelines.

The company, which expects about $2 billion in revenue this year, works with about 6,000 electricians nationwide, Jagdfeld said. At the start of the year, there were only 100 in California. Now that number has risen to 250, he said, and the company is adding about 30 new ones a month.

“The interest level in California has been pretty material,” said Stanley Elliott, an analyst at Stifel Nicolaus & Co. “You are going to continue to have these rolling brownouts.”

In addition to the push into California, Jagdfeld said the company’s recent acquisitions of Pika Energy Inc. and Neurio Technology Inc. may have helped drive up the company’s stock. Since May 1, Generac’s shares have risen 65% to $90.71 per share. One company makes products that let consumers monitor the power they use, the other allows homeowners to direct power from their solar arrays.

While they aren’t included in Jagdfeld’s $100 million to $200 million goal for revenue in California, they represent “a nice, natural fit into our existing product lines, that we could start to forge a position in the home, in the utility panel,” Jagdfeld said.

(Updates with shares in the fifth paragraph)

--With assistance from Mark Chediak.

To contact the reporters on this story: Brian Eckhouse in New York at beckhouse@bloomberg.net;Nic Querolo in New York at jquerolo1@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Reg Gale, Will Wade

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