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Generac Holdings (GNRC) Down 4.3% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Generac Holdings (GNRC - Free Report) . Shares have lost about 4.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Generac Holdings due for a breakout? 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 Q2 Earnings & Revenues Beat Estimates

Generac Holdings Inc.  reported second-quarter 2022 adjusted earnings of $2.99 per share, which beat the Zacks Consensus Estimate by 12.8%. Also, the bottom line increased 25.1% year over year.

Net sales increased 40% year over year and came in at $1.29 billion, beating the consensus mark by 2.4%. Robust demand for Residential and Commercial & Industrial (C&I) products boosted Generac’s second-quarter performance.

In the quarter under review, Core sales growth (excludes the impact of acquisitions and foreign currency) increased 33% year over year.

Quarter in Details

Segment-wise, Domestic revenues increased 42% year over year to $1.13 billion, driven by the impact of acquisitions that contributed nearly 6% to revenues. Higher demand for home standby generators and strength across C&I products were the driving factors.

International revenues rose 43% to $203.3 million, driven by strong performance across all regions, especially in Europe and Latin America. The impact of acquisitions and forex contributed nearly 9% to revenues.

Product-wise, revenues from Residential soared 49% to $896 million. Revenues from C&I were $309 million, up 22% from the year-ago quarter’s levels. Revenues from the Other product class came in at $86 million, up 30.9% year over year.

Margins

Gross profit was $456.9 million, up from $339.7 million with respective margins of 35.4% and 36.9%. The gross profit margin declined due to higher input costs related to supply-chain disruptions, partly offset by pricing actions and favorable sales mix.

Operating expenses were $83.4 million, up 53.2% from the prior-year quarter’s levels. This was due to higher variable expenses from an increase in sales volumes, a rise in employee costs and the impact of acquisitions.

Operating income came in at $216.8 million, up 18.5%. Adjusted EBITDA was $271.5 million compared with $217.7 million in the year-ago quarter, driven by significant revenue growth.

Cash Flow & Liquidity

In the second quarter, the company generated $23.8 million of net cash from operating activities. Free cash flow came in at $5.8 million.

As of Jun 30, 2022, the company had $467.1 million in cash and cash equivalents with $1.287 billion of long-term borrowings and finance lease obligations.

In the quarter under review, the company repurchased shares worth $124 million, thereby exhausting its existing share buyback authorization.

On Jul 29, 2022, the company announced a new stock repurchase program for $500 million, expanding over a 24-month period.

2022 Outlook

For 2022, Generac expects revenue growth between 36% and 40%, unchanged from the previous guidance. This includes a net impact between 5% and 7% from acquisitions and foreign currency changes.

The net income margin (before deducting for non-controlling interests) is expected to be 13-14%. The adjusted EBITDA margin is estimated in the range of 21.5-22.5%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Generac Holdings has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.


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