A month has gone by since the last earnings report for Generac Holdings (GNRC Quick QuoteGNRC - Free Report) . Shares have added about 7.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Generac Holdings due for a pullback? 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 Miss Estimates

Generac reported second-quarter 2023 adjusted earnings of $1.08 per share, which missed the Zacks Consensus Estimate of $1.16. GNRC reported adjusted earnings per share of $2.86 in the prior-year quarter.

Net sales decreased 23% year over year to $1 billion, but beat the consensus estimate of $985 million. The year-over-year performance was affected by softness in Residential products owing to soft consumer-demand environment. However, it was partly offset by robust demand for C&I products.

In the quarter under review, core sales growth (excluding the impact of acquisitions and foreign currency) decreased 26% year over year.

Owing to weaker-than-expected consumer environment, Generac now anticipates Residential product sales to be lower than earlier expectation during the second half of 2023. However, C&I product sales are now projected to grow at a mid-teens rate compared with the earlier guided range of a mid-to-high single-digit growth.

For 2023, GNRC now estimates revenues to decline in the range of 10-12% compared with the earlier guidance of decline in the range of 6-10%. This includes a net favorable impact of 2% from acquisitions and foreign currency changes.

Net income margin (before deducting for non-controlling interests) is now expected to be 6-7% compared with the earlier guided range of 7.5-8.5%. Adjusted EBITDA margin is estimated in the 15.5-16.5% band compared with the earlier guided range of 17-18%.

Quarter in Details

Segment-wise, Domestic revenues plunged 28% year over year to $815.3 million. Core revenues were down due to lower home standby and clean energy product shipments partly offset by higher smart thermostat sales.

International revenues rose 10% to $223.7 million. Core revenues were driven by strength across all geographies, noted the company. The positive impact of acquisitions and forex contributed nearly 4% growth to revenues.

Product-wise, revenues from Residential tumbled 44% to $499 million. C&I revenues were $384 million, up 24% from the year-ago quarter’s levels. Revenues from the Other product class totaled $117.5 million, gained 36.6% year over year.

Margins

Gross profit was $328.4 million, down from $457 million from the prior year quarter, with respective margins of 32.8% and 35.4%. Gross profit margin declined due to an unfavorable sales mix partly offset by pricing actions and lower input costs.

Total operating expenses were $242.5 million, up 1% from the prior-year quarter’s levels. The uptick was caused by higher employee and marketing costs, and recurring operating expenses from recent acquisitions extensively offset by reduced variable operating expenses.

Operating income came in at $86 million, down 60.4% year over year. Adjusted EBITDA before deducting for noncontrolling interests was $137 million compared with $271 million in the year-ago quarter.

Cash Flow & Liquidity

In the second quarter, the company generated $83 million of net cash from operating activities. Free cash outflow totaled $54 million.

As of Jun 30, GNRC had $192.8 million in cash and cash equivalents, with $1.523 billion of long-term borrowings and finance lease obligations.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -18.89% due to these changes.

VGM Scores

Currently, Generac Holdings has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.