Why Is Generac Holdings (GNRC) Up 17.8% Since Last Earnings Report?
It has been about a month since the last earnings report for Generac Holdings (GNRC). Shares have added about 17.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Generac Holdings due for a pullback? 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 catalysts.
Generac Q3 Earnings Beat Estimates
Generac reported third-quarter 2023 adjusted earnings per share of $1.64 per share, which beat the Zacks Consensus Estimate of $1.50. It registered EPS of $1.75 in the prior year.
Net sales decreased 2% year over year to $1.07 billion but outshined the consensus estimate of $1038.1 million. The year-over-year performance was affected by a softness in the Residential products business.
The company added that it witnessed a sequential increase in shipments of home standby generators. Higher activations are pushing field inventories toward more sustainable levels, noted mangement.
Core sales growth (excluding impacts of acquisitions and foreign currency) reduced 4% year over year.
For 2023, Generac continues expecting revenues to plunge 10-12%. This includes net favorable impact of 2% from acquisitions and foreign currency changes.
Net income margin (before deducting for non-controlling interests) is now anticipated to be 5-6% compared with the earlier guided range of 6-7%. Adjusted EBITDA margin is estimated in the 15.5-16.5% band, unchanged from the previous projection.
Quarter in Details
Segment-wise, Domestic revenues declined 6% year over year to $894 million. Lower residential product sales (mainly home standby and portable generator shipments), which was partly offset by growth in C&I product sales, resulted in this downtick.
International revenues rose 14% to $207.6 million, with acquisitions and favorable foreign currency movement providing a positive impact of 11%. Core revenues were up 3%, driven by healthy sales of C&I products in most regions. Weak portable generator sales in Europe acted as a headwind.
Product-wise, revenues from Residential tumbled 15% to $565 million. C&I revenues were $385 million, up 24% from the year-ago levels. Revenues from the Other product class totaled $121 million, gaining 7.2% year over year.
The Zacks Consensus Estimate for Residential and C&I products’ third-quarter revenues was pegged at $574 million and $342 million, respectively.
Margins
Gross profit was $375.8 million, up from $361.1 million in the prior-year quarter, with respective margins of 35.1% and 33.2%. Gross profit margin performance gained from lower raw material and logistics costs, and production efficiencies.
Total operating expenses were $271 million, down 0.9% from the prior year.
Operating income of $104.8 million dipped 19.7% year over year. Adjusted EBITDA, before deducting for non-controlling interests, was $189 million compared with $184 million a year ago.
Cash Flow & Liquidity
In the third quarter, the company generated $140 million of net cash from operating activities. Free cash outflow totaled $117 million.
As of Sep 30, Generac had $161.5 million of cash and cash equivalents, with $1.465 billion of long-term borrowings and finance lease obligations.
During the reported quarter, the company repurchased 875,580 shares worth $100 million. As of Sep 30, 2023, it has $178 million worth of stock remaining under the current repurchase program.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, Generac Holdings has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. 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 D. 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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Generac Holdings Inc. (GNRC) : Free Stock Analysis Report
