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Demand is 'exceeding supply' amid blackouts in Texas: Generac CEO

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Generac CEO Aaron Jagdfeld joins Yahoo Finance Live to discuss electricity demand as millions are without power in Texas.

Video Transcript

ZACK GUZMAN: Welcome back to "Yahoo Finance Live." We're continuing to track the storm that is creating massive power outages from multiple states as far as Texas to North Dakota, as we're seeing more than 5 million customers deal with power outages across those states. Obviously, the grids in these states continue to be stretched, dealing with winter storms that are not usual. Temperatures in Dallas reaching about 1 degree, even below 0. The windchill not something that states like these are accustomed to dealing with.

And that's a big boost to companies out there that are helping states battle all that, including Generac Holdings, a company that we've discussed on this show a few times. That stock is up more than 200% over the last year, as the generator company there helps people deal with power outages just like the ones we're seeing.

And for more on that, I want to bring back the CEO of Generac. Aaron Jagdfeld joins us right now. Aaron, good to be chatting with you again. I mean, we talked about these issues mostly through the lens of California when we were seeing those issues in that state, but now kind of stressing that power outage issues are not unique to California, as we're seeing now. So how big of a boost has it been for a company like yours, helping people prepare for these situations?

AARON JAGDFELD: Well, it's interesting, Zack. It's been an incredibly busy 12 months here at the company, punctuated by some of the more high-profile events, as you pointed out with California. We had the California heat wave over the summer, which had basically some of the same impacts, the same causations that we're seeing in Texas right now, with basically demand outstripping supply. And that was the case in California.

They had to go to rolling blackouts to balance the grid. And you're seeing the same situation in Texas. In the case of Texas, they heat their homes with electricity with baseboard heaters and heat pumps. So you have the same kind of problems that are being laid bare, where you have demand exceeding supply.

And for us in particular, I think the one added caveat this year, and I think one of the reasons why things have really been busy for us is, you put this in the backdrop of a pandemic. And I think what people are finding, they're spending a lot more time in their own homes. They're working from home. Their kids are going to school from home. They're shopping from home, entertaining from home. Home has become, as we have kind of talked about, home is a sanctuary.

And so people are just, I think, hypersensitive to, when you lose power at home today, it really becomes-- it's much more than just an inconvenience. So that's kind of an added layer to the demand curve.

AKIKO FUJITA: And Aaron, when you think about just the impact of this most recent storm, we're talking roughly 150 million people who are left without power. What's been the direct impact to Generac? What kind of spike have you seen on the back of this? And ultimately, when you talk about this demand that you have seen across the country, are you in a position to be able to meet it?

AARON JAGDFELD: Yeah. At least initially here with Texas, what we'll do is we'll actually ship as many as we can anyway, small portable generators that use gasoline, really an emergency duty product. And over the next 12 months to 24 months after the power returns, we'll see a marked interest in the more permanently installed versions of our products that run off of natural gas or propane, so fully automatic, would be permanently installed at the home.

It's really been the flagship product for the company over the last decade. We're at about 5% of US households that have a product like that installed, which means there's 95% that don't. So every 1% of penetration is about 2 and 1/2 billion dollars of market opportunity for the company. And we have about 75% share of that market. We created it about two decades ago.

But we are trying to get as much product as we can down into that region. And we hope that people are able to get their hands on that and at least provide some relief here during the next several days, as the temperatures continue to be very low there.

ZACK GUZMAN: Yeah. Aaron, each time we have you on, I feel it's around one of these storms. Our producer is very good at booking to get you to come on to talk about these things. And each time, it's almost a question of, oh, well surely we've hit the last one. Their growth continues at Generac. But each time, we see more and more storms. And you guys always come back on and talk about how sales have increased.

We saw that last week. You guys reported net sales increased 29% to a record 761 million during the fourth quarter. And interesting to see kind of that shift that you're talking about to the consumer side because your guys' margins increased as well 39.4% because you see that shift to the consumer side. So talk to me about maybe how that also even drives your financials around that shift as more consumers start to say, hey, I want to be protected at home.

AARON JAGDFELD: Yeah. It's a really good point, Zack. Our residential business, it's really been the growth engine of the company. We actually have a tremendous commercial and industrial business as well. But the growth rates just don't match that of the residential side. And I think we're basically coming to the conclusion that the residential category is really almost like the new must-have appliance for most homeowners.

In fact, we just announced the opening of a new facility down in South Carolina. We'll be online with that facility here mid-year. And that's going to be dedicated to the production of residential products because that is where we're seeing the heaviest demand. But it does have an outsized effect on our financials, of course.

You mentioned something at the start of this piece here, kind of describing the company as a generator company. I think historically, that is our legacy. That's over 60 years of being in the generator business. But the last several years, we've really been repositioning the company as more of an energy technology company.

We've made a number of acquisitions on clean energy, green energy, energy storage, energy monitoring and management. We recently closed on a deal of a company called Impala Networks last October. That is a software provider that helps grid operators and utilities and energy retailers. It helps them better balance supply and demand on their grid by using those distributed energy resources like generators and batteries and solar systems out there as a way to help mitigate some of the imbalances you see between demand and supply.

AKIKO FUJITA: Yeah. Aaron, I think you hit on the point there that there's a larger discussion that's happening about diversifying the energy mix, moving away from oil and natural gas further to electric as well as renewables. I know we're just talking about one event here. But there does seem to be a bit of a chorus coming out saying, look, this one event, this storm shows the vulnerabilities that are still in this overall idea to shift to a completely new grid.

How are you looking at that debate right now? And from Generac's standpoint, do you just sort of press on with the focus on renewables because the long-term goal, long-term thesis remains intact?

AARON JAGDFELD: I think you're going to hear-- we refer to it here as the three D's of the new grid. It's going to be decentralized. It's going to be digitized. And it's going to be decarbonized. That is the new grid. You're going to move from what today is a centralized format, large power plants, either coal or natural gas or nuclear providing power in a big block of format and then sending it hundreds if not thousands of miles across transmission lines down to an individual home or business meter.

And that model is shifting. And it's going to be shifting very quickly. In fact, there are two forces behind that, two primary forces. It's regulation and technology. And the technology is going to enable a lot of additional types of supply, whether they be, again, lower cost solar or renewables or storage. That's going to be one side of the equation.

And the other side of the equation is going to be the regulatory side. And I think in particular with the new administration, I think you've got a political will there to go after climate change in a way that hasn't existed before. And that's going to lead to a massive transformation of the nation's power grid. And for us as Generac, those acquisitions I mentioned and this transformation to an energy technology company is all about having us participate in the changing nature of that grid. And we're very excited about that.

AKIKO FUJITA: Well, we look forward to continuing the conversation on that front. Aaron Jagdfeld, the CEO of Generac. It's good to talk to you today. Thanks so much for your time.