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Generac (GNRC) Q4 Earnings & Revenues Top Estimates, Up Y/Y

Zacks Equity Research

Generac Holdlings Inc. GNRC reported adjusted earnings of $1.42 per share, which increased 2.2% year over year. Additionally, the figure beat the Zacks Consensus Estimate by 3 cents.

Total revenues of $563.4 million beat the Zacks Consensus Estimate of $552 million and increased 14.3% year over year.

The year-over-year growth in revenues was driven by robust demand for home standby generators. Moreover, high order rates for natural fuel gas generators and solid shipment of C&I stationary generator and mobile product drove the top line.

Top-Line Details

On a segmental basis, the company’s Domestic segment’s sales grew 14.3% year over year to $437.8 million while that from International segment increased 14% to $125.6 million.

The increase in Domestic segment was driven by robust growth in shipments of home standby generators. Additionally, solid demand from telecom and rental customers drove shipments for C&I stationary generator and mobile product. However, the growth in this segment was partially offset by lower shipments of portable generators.

Domestic order rates from industrial distributors for natural fuel gas generators was solid in the reported quarter. This increase in demand comes on the back of low natural gas prices and accelerating adoption of natural gas as a cost-effective fuel source for backup power.

Growth in the International segment was driven by Pramac, Ottomotores and Motortech businesses.

Based on product classes, the company’s Residential product sales grew 10.2% year over year to $293.9 million, Commercial & Industrial product sales increased 17.5% to $223.2 million, and Other sales totaled $46.3 million, surging 26.5% year over year.

Generac Holdlings Inc. Price, Consensus and EPS Surprise

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

Full-Year Details

Total revenues in 2018 were $2.02 billion compared with $1.68 billion in 2017. Notably, total core sales growth for the year was approximately 19%.

Adjusted earnings per share came in at $4.70, up 39% year over year.

Adjusted EBITDA for 2018 was $424.6 million (21.0% of net sales) compared with $317.3 million (18.9% of net sales) in 2017.

Moreover, cash flow from operations was $247.2 million, down year over year. Free cash flow was $203.6 million as compared to $227.9 million in 2017.

Management stated that its residential dealer base expanded during the year to an all-time high of more than 6000.

Operating Details

In the quarter, Generac Holdings’ costs of goods sold increased 15.8% year over year, representing 63.7% of total revenues versus 62.9% a year ago.

Gross margin contracted 80 basis points (bps) year over year to 36.3%. The company’s shift toward subscription-based transactions impacted gross margin negatively.

Total operating expenses totaled $95.5 million, up 9% year over year. Selling & service, research & development, and general & administrative expenses were up 6.3%, 8.7% and 22.1%, respectively, year over year.

The increase in operating expenses was primarily driven by higher sales volumes, increase in employee costs including long-term incentive compensation, and recurring operating expenses from the Selmec acquisition.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $126.1 million, up from $112.4 million in the year-ago quarter. EBITDA margin decreased 40 bps to 22.4% year over year.

Generac’s Domestic segment’s EBITDA (91.6% of total adjusted EBITDA) increased 13.3% year over year to $115.5, while International segment’s (8.4%) EBITDA was up by a percent to $10.6 million.

Balance Sheet & Other Details

Exiting the fourth quarter, Generac Holdings had cash and cash equivalents of $224.5 million, up from $138.5 million in the year-ago quarter. Long-term borrowings decreased 3.4% year over year to $876.4 million.

In the fourth quarter, the company generated net cash of $108.2 million compared with $136.7 million in the prior quarter. Free cash flow was $87.3 million compared $121.8 million in the fourth quarter of 2017.

The decline in cash flow was attributed to an increase in working capital investments, incremental inventory purchases ahead of expected tariff changes, and higher capital expenditure levels.

Guidance

Generac expects 2019 revenues to increase in the range of 3-7% from 2018 on an as- reported basis and 2 -6% on a core basis.

Net sales in the first half of 2019 is expected to grow 10 -12% on an as-reported basis, and 8 -10% on a core basis. Adjusted EBITDA margin for the full year is expected to be between 20 and 21%.

The company is witnessing input costs headwinds including increase in the price of steel, aluminum and copper. Further, rising logistics and labor costs are expected to keep margins under pressure in 2019.

Zacks Rank and Stocks to Consider

Generac currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector include Jabil, Inc. JBL, Synaptics Incorporated SYNA and Twilio Inc. TWLO. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Jabil, Synaptics and Twilio is projected to be 12%, 5% and 9%, respectively.

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