Generac Holdings (GNRC) Down 6.6% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Generac Holdings (GNRC). Shares have lost about 6.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Generac Holdings due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Generac Q4 Earnings Miss Estimates
Generac’s fourth-quarter 2023 adjusted earnings per share (EPS) of $2.07 missed the Zacks Consensus Estimate of $2.10. GNRC reported adjusted EPS of $1.78 in the prior year.
Net sales increased 1% year over year to $1.06 billion but fell short of the consensus estimate by 3.07%. The year-over-year performance was driven by improvement across both the segments.
In the quarter under review, core sales growth (excluding the impact of acquisitions and foreign currency) remained unchanged year over year.
For 2023, GNRC reported a 12% decline in revenues to $$4.02 billion. However, the company expects sales to return to growth in 2024.
For 2024, GNRC expects revenues to increase in the range of 3-7%, including a slight net favorable impact from foreign currency changes. Revenues will be driven by momentum in residential product sales growth, which is forecasted to be in the mid-teens range. Residential product sales growth will gain from shipments of home standby generators and residential energy technology products.
However, C&I product sales are anticipated to decline 10% owing to weakness with certain direct rental, telecom and “beyond standby” customer, added GNRC.
Net income margin (before deducting for non-controlling interests) is now anticipated in the 6.5-7.5% range. Adjusted EBITDA margin is estimated in the 16.5-17.5% band.
Quarter in Details
Segment-wise, Domestic revenues were up 1% year over year to $891 million. Revenues rose on the back of higher home standby generator shipments and an increase in C&I product shipments. Reduced portable generator sales and a lower C&I product shipments to telecom and national rental equipment clients acted as headwinds.
International revenues fell 13% to $190.1 million, with acquisitions and favorable foreign currency movement and acquisitions providing a positive impact of 7%. Core revenues were down 20% due to weak inter-segment sales (owing to softness in the telecom market) and reduced portable generator shipments in Europe.
Product-wise, revenues from Residential inched up 1% to $580 million. C&I revenues were $363 million compared with $361 million in the year-ago quarter. Revenues from the Other product class totaled $120.4 million, gaining 6.5% year over year.
The Zacks Consensus Estimate for Residential and C&I products’ fourth-quarter revenues was pegged at $606 million and $372 million, respectively.
Margins
Gross profit was $388.7 million, up from $343.2 million in the prior-year quarter, with respective margins of 36.5% and 32.7%. Gross profit margin performance gained from favorable product mix, production efficiencies, and lower raw material and logistics expenses.
Total operating expenses were $237.8 million, up 0.8% year over year.
Operating income came in at $151 million, up 40.8% year over year. Adjusted EBITDA, before deducting for non-controlling interests, was $213 million compared with $174 million a year ago.
Cash Flow & Liquidity
In the fourth quarter, the company generated $317 million of net cash from operating activities. Free cash outflow totaled $266 million.
As of Dec 31, GNRC had $201 million of cash and cash equivalents, with $1.448 billion of long-term borrowings and finance lease obligations.
During the reported quarter, the company repurchased 1.3 million shares worth $151 million. GNRC bought back 2.2 million shares for $252 million in 2023.
In February 2024, GNRC approved a new stock buyback authorization that allows for the repurchase of up to $500 million over the next 24 months. It replaced the remaining balance on the earlier program.
How Have Estimates Been Moving Since Then?
Since the earnings release, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -44.34% due to these changes.
VGM Scores
Currently, Generac Holdings has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Generac Holdings has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Generac Holdings Inc. (GNRC) : Free Stock Analysis Report
