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Earnings Results: Generac stock rockets as ‘mega trends’ of extreme weather, electrification drive demand for home generators

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Shares of Generac Holdings Inc. soared Wednesday, after the power generation equipment maker reported record quarterly revenue, profit that rose above expectations and provided an upbeat full-year outlook, citing ‘robust’ demand for home standby generators.

The stock
GNRC,
+14.19%

charged 15.0% higher, enough to pace the S&P 500 index’s
SPX,
-0.59%

gainers. That put the stock on track for the biggest one-day gain since it ran up 17.3% on Feb. 16, 2016.

The company reported before the open fourth-quarter net income that rose to $142.9 million, or $2.04 a share, from $125.0 million, or $1.97 a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share increased to $2.51 from $2.12, to beat the FactSet EPS consensus of $2.42.

Sales grew 40.2% to $1.07 billion, the second-straight quarterly record, and above the FactSet consensus of $1.02 billion. Domestic sales rose 38.9% to $896.4 million, led by home standby generators and PWRcell systems, which are integrated solar-plus-battery energy storage systems.

Residential products sales jumped 41.5% to $705.8 million, exceeding the FactSet consensus of $669.8 million, and commercial and industrial products (C&I) sales grew 43.0% to $284.0 million to beat expectations of $272.4 million.

Meanwhile, cost of goods sold rose 52.9%, or more than sales growth, to $704.5 million, to knock gross margin down to 34.0% from 39.4%.

Chief Executive Aaron Jagdfeld said on the post-earnings conference call with analysts that demand for home standby generators continued to benefit from “important mega trends,” which helped expand consumer awareness of the category.

“The ‘home-is-a-sanctuary’ trend remains a key driver of demand, along with the impacts of more extreme weather resulting in elevated power outage activity over the past several quarters, including three major outages over the past 18 months,” Jagdfeld said, according to a FactSet transcript. “The combination of these factors, along with broader electrification trends, continues to drive incredibly strong demand for home standby generators.”

He added that demand for generators is at nearly four times the levels of pre-pandemic 2019.

In addition, Jagdfeld said the “solar-plus-storage” market continues to expand rapidly, with shipments of PWRcell energy storage systems expected to “increase substantially” and with clean energy revenue to “grow aggressively” in 2022.

For 2022, the company said it expects sales to rise 32% to 36% above 2021 revenue of $3.74 billion. The current FactSet consensus for 2022 revenue of $4.70 billion implies growth of 25.8%.

“We enter 2022 with considerable visibility and momentum given ongoing robust home standby demand, an expanding Energy Technology solutions portfolio, and strong global demand for our C&I products,” Jagdfeld said.

Generac’s stock has now run up 23.8% since it closed at a one-year low of $256.99 on Jan. 27, but has still tumbled 27.5% over the past three months. In comparison, the SPDR Industrial Select Sector exchange-traded fund
XLI,
-0.02%

has declined 6.2% over the past three months while the S&P 500 has eased 5.4%.

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