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Generac (GNRC) Beats on Q3 Earnings, Shares Up on Solid View

Zacks Equity Research
·5 min read

Generac Holdings Inc. GNRC reported impressive third-quarter 2020 financial results, with the top and bottom lines surpassing the respective Zacks Consensus Estimate. Despite the COVID-19 turmoil, higher shipment levels and robust demand for residential products across global markets on the back of growing acquisitions buoyed Generac’s quarterly performance. The stock gained 4.5% in response to the results, closing at $217.11 on Oct 28.

Bottom Line

On a GAAP basis, net income was $115 million or $1.82 per share compared with $75.6 million or $1.18 per share in the prior-year quarter. The significant year-over-year improvement was primarily driven by top-line growth.

On an adjusted basis, net income in the September quarter came in at $132.9 million or $2.08 per share compared with $90 million or $1.43 per share in the year-ago quarter. The bottom line surpassed the consensus estimate by 33 cents.

Generac Holdlings Inc. Price, Consensus and EPS Surprise

Generac Holdlings Inc. Price, Consensus and EPS Surprise
Generac Holdlings Inc. Price, Consensus and EPS Surprise

Generac Holdlings Inc. price-consensus-eps-surprise-chart | Generac Holdlings Inc. Quote

Revenues

Quarterly revenues totaled $701.4 million compared with $601.1 million in the year-ago quarter. The 16.7% year-over-year jump was primarily driven by higher domestic revenues along with growth in core sales. Accretive demand for home standby and portable generators during the quarter was also a contributor factor. Further, the top line beat the Zacks Consensus Estimate of $683 million.

By segment, Domestic revenues increased 22.6% to $606.9 million compared with $494.8 million in the prior-year quarter. The uptick was mainly driven by higher shipments of portable and home standby generators triggered by elevated power outage incidences. Also, PWRcell energy storage solution shipments, along with expected recovery in the solar quarter, boosted segment revenues. However, International revenues declined 11.1% to $94.5 million due to soft demand for Commercial & Industrial (C&I) products across global market stemming from COVID-19 adversities.

Revenues from Residential products improved 37% to $458.9 million in the quarter. However, the record growth was partially offset by lower oil prices and continued broad-based weakness in C&I segment as a result of the virus outbreak. Revenues from C&I products was $176.2 million, down from $214.9 million in the year-ago quarter due to sluggish demand whereas revenues from Other product class came in at $66.3 million, up from $51.2 million.

Further, Generac concluded the acquisition of Energy Systems, a leading distributor of power generation systems based in Northern California. It also acquired the assets of Mean Green Products, LLC, a leading battery-powered, commercial-grade turf care products manufacturer based in Ross, OH. These acquisitions played a major role in enhancing Generac’s top line during the quarter.

Other Details

Total operating expenses were $120.5 million compared with $112 million in the prior-year quarter, primarily driven by higher incentive compensation and incremental expenditures related to clean energy products. However, it was partially offset by lower advertising and promotional costs. Operating income came in at $155.6 million, up 47.4% from $105.6 million in the year-ago quarter. Gross profit in the quarter was $276.1 million, up from $217.5 million with respective margins of 39.4% and 36.2%. The year-over-year increase was mainly driven by a favorable sales mix on the back of higher shipments of residential products. Adjusted EBITDA totaled $178.8 million compared with $126 million in the year-ago quarter, driven by significant revenue growth.

Cash Flow & Liquidity

In the first nine months of 2020, Generac generated $268.3 million of net cash from operating activities compared with $133.8 million in the prior-year period. With a robust liquidity position, free cash flow for the same period came in at $236.4 million compared with $90.4 million a year ago. As of Sep 30, 2020, the company had $513.9 million in cash and equivalents with $556.3 million of total current liabilities.

Full-Year 2020 View Revised

Generac has updated the guidance for full-year 2020 to better reflect the higher power outage environment and increased production rates. The company now expects revenues to grow at a rate of nearly 10-12% compared with the prior expectation of 5-8%. Adjusted EBITDA margin is estimated to be 22.5-23% compared with 21.5-22% expected earlier, and net income margin (before deducting for non-controlling interests) is expected to be about 13-13.5% compared with prior expectations of 12-12.5%.

Zacks Rank & Stocks to Consider

The stock sports a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks in the broader industry are Calix, Inc. CALX, Viasat, Inc. VSAT and NETGEAR, Inc. NTGR, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Calix delivered a trailing four-quarter positive earnings surprise of 72.2%, on average.

Viasat delivered a trailing four-quarter positive earnings surprise of 361.3%, on average.

NETGEAR delivered a trailing four-quarter positive earnings surprise of 60%, on average.

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