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Generac Holdings Inc. (GNRC - Snapshot Report) posted impressive results for the second quarter of 2013. The company’s adjusted earnings per share came in at 95 cents, up a whopping 63.8% over the year-ago quarter. Results also surpassed the Zacks Consensus Estimate of 76 cents.

Earnings outperformance can be attributed to increased sales and improved margins in the quarter.

Revenues

Generac generated net sales of $346.7 million, up 45% year over year driven by increased demand from households for backup power and the acquisition of Ottomotores.
 
Revenues from Residential products increased 59.3% year over year to $196.6 million due to increased demand for home stand by and portable generators. Revenues derived from Commercial & Industrial products increased 32.0% to $133.4 million, driven by the acquisition of Ottomotores as well as increased sales of natural gas generators.

Margins

Cost of goods sold in the second quarter increased 42.2% year over year and represented 62.2% of total revenue, down from 63.4% in the year-ago quarter. Selling and service, R&D and G&A expenses combined together as a percentage of total revenue, stood at 13.9% versus 15.9% in the year-ago quarter. Operating margin in the quarter was 22.0%, up from 15.5% in the year-ago quarter.

Balance Sheet

Exiting the second quarter of 2013, Generac’s cash and cash equivalents stood at $126.6 million versus $54.3 million in the preceding quarter. Long-term debt increased 52.8% to $1,177.3 million versus $770.7 million in the previous quarter.

Cash Flow

In the second quarter, Generac generated roughly $36.1 million cash from operating activities that was up nearly 71.1% year over year. Capital spending rose 70.2% to $5.7 million. It increased free cash flow by 70.8% to $30.3 million.

Cash dividends paid in the first half of 2013 amounted to $343.4 million.

Outlook

Based on the strong demand expectation, management of Generac has revised its guidance for the year 2013 upwards. Net sales growth now is thereby expected to be in the low 20% range versus low-to-mid teens growth expected earlier. Growth in the second half of the year is anticipated to be roughly in the mid single-digit range.

Generac expects gross margin to be flat year over year while operating expenses, as a percentage of sales, are anticipated to be approximately flat versus the marginal increase expected earlier. Adjusted EBITDA growth is expected to improve from low-teens percentage range to a low 20% range.
 
Generac currently has a $2.8 billion market capitalization. The stock carries a Zacks Rank #3 (Hold). Other stocks to watch out for in the industry are Lennox International, Inc. (LII - Snapshot Report), with a Zacks Rank #1 (Strong Buy) while Dover Corporation (DOV - Analyst Report) and Nordson Corporation (NDSN - Snapshot Report), each carrying a Zacks Rank #2 (Buy).

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