Generac Holdings (GNRC) Up 16.3% Since Last Earnings Report: Can It Continue?

It’s been a month since Generac Holdings’ (GNRC) last earnings report. Shares have risen about 16.3% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Generac Holdings facing a slowdown? Before we dive into the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

Generac’s first-quarter earnings beat estimates

Generac reported first-quarter 2024 adjusted earnings per share (EPS) of 88 cents, beating the Zacks Consensus Estimate of 72 cents. Generac reported adjusted earnings per share (EPS) of 63 cents in the prior-year period.

Net sales were $889.3 million compared to $887.9 million in the prior-year quarter. The figure was also higher than the consensus estimate of $885.5 million. The increase in sales of housing products cushioned the financial results.

In the quarter under review, basic sales dynamics (excluding the impact of acquisitions and foreign currencies) decreased by 1% year-on-year.

Generac maintained its sales expectations for 2024.

The Management Board expects revenue growth in 2024 in the range of 3-7%, taking into account the slight positive net impact of exchange rate changes.

The net profit margin (before deduction of non-controlling interests) is now expected to be in the range of 6-7% compared to the previously assumed range of 6.5-7.5%.

Adjusted EBITDA margin is estimated in the range of 16.5-17.5%.

The quarter in detail

On a segment basis, domestic revenues were $720.5 million compared to $720 million in the prior-year quarter. Increased deliveries of home standby generators and higher sales of C&I products to industrial distributors contributed to the results. This was largely offset by reduced sales of portable generators and lower shipments of C&I products to telecommunications and domestic equipment rental customers.

International revenue declined 14% year-over-year to $186.7 million. However, acquisitions and favorable currency movements provided a positive impact of 4%. Core revenues declined 18% due to weak inter-segment sales (due to the weak telecommunications market) and lower shipments of portable generators in Europe.

On the product side, Residential revenue increased 2% to $429 million. C&I revenues were $354 million, down 2% year-over-year. Revenues from the Other product category amounted to $106.4 million, up 0.3% year over year.

The Zacks Consensus Estimate calls for first-quarter residential and C&I revenues of $460 million and $311 million, respectively.

Margins

Gross profit was $316.4 million, compared to $272.5 million in the prior-year quarter, with margins of 35.6% and 30.7%, respectively. Gross profit margin results achieved through favorable sales mix, production efficiency and lower production costs.

Total operating expenses were $249.5 million, up 9.4% year-over-year, primarily due to higher employee costs and marketing expenses.

Operating income was $66.9 million, up 50.3% year over year. Adjusted EBITDA, before deducting noncontrolling interests, was $127 million, compared with $100 million a year earlier.

Cash flow and liquidity

In the first quarter, the company generated $111.9 million in net cash from operations. Free cash flow was $85.1 million.

As of March 31, 2024, GNRC had cash and cash equivalents of $249.4 million and long-term loan and financial lease liabilities of nearly $1.440 billion.

In the reported quarter, the company did not acquire any shares. In 2023, it bought back 2.2 million shares for $252 million.

In February 2024, the GNRC approved a new share repurchase authorization that allows for repurchases of up to $500 million over the next 24 months. It replaced the remainder of the previous program.

How have estimates changed since then?

It turns out that new estimates have been trending downward over the past month.

VGM results

Generac Holdings currently has a Strong Growth Score of A, although well behind its Momentum Score of F. However, the stock is rated C for Value, ranking in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Generac Holdings carries a Zacks Rank of #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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