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Generac (GNRC) Q1 Earnings Beat Estimates, Revenues Fall Y/Y

Generac Holdings Inc GNRC reported first-quarter 2023 adjusted earnings of 63 cents per share, which beat the Zacks Consensus Estimate of 52 cents. GNRC reported adjusted earnings of $1.98 in the prior-year quarter.

Net sales decreased 22% year over year to $888 million, but beat the consensus estimate of $840.1 million The year-over-year performance was affected by softness in residential products and continued excess backlog of home standby field inventory levels coupled with decline in clean energy products. However, it was partly offset by robust demand for Commercial & Industrial (C&I) products.

In the quarter under review, core sales growth (excluding the impact of acquisitions and foreign currency) decreased 24% year over year.

Generac Holdings Inc. Price, Consensus and EPS Surprise

Generac Holdings Inc. Price, Consensus and EPS Surprise
Generac Holdings Inc. Price, Consensus and EPS Surprise

Generac Holdings Inc. price-consensus-eps-surprise-chart | Generac Holdings Inc. Quote

Quarter in Details

Segment-wise, Domestic revenues decreased 26% year over year to $720 billion due to lower home standby and clean energy product shipments, partly offset by strength across C&I products.

International revenues rose 17% to $216.5 million, driven by strong performance in Europe. The impact of acquisitions and forex contributed nearly 2% net headwind to revenues.

Product-wise, revenues from Residential declined 46% to $419 million. Revenues from C&I were $363 million, up 30% from the year-ago quarter’s levels. Revenues from the Other product class totaled $106.1 million, up 32.3% year over year.

Margins

Gross profit was $272.5 million, down from $360.7 million, with respective margins of 30.7% and 31.8%. Gross profit margin declined due to an unfavorable sales mix partly offset by pricing actions and lower input costs.

Total operating expenses were $228.1 million, up 10.7% from the prior-year quarter’s levels. The uptick was caused due to higher promotion and employee costs, marketing, legal and regulatory expenses along with recurring operating expenses pertaining to recent acquisitions

Operating income came in at $44.5 million, down 71.3%. Adjusted EBITDA was $100.1 million compared with $196.4 million in the year-ago quarter.

Cash Flow & Liquidity

In the first quarter, the company used $18.6 million of net cash from operating activities. Free cash outflow came in at $41.7 million.

As of Mar 31, GNRC had $137.4 million in cash and cash equivalents with $1.527 billion of long-term borrowings and finance lease obligations.

2023 Outlook

For 2023, Generac continues to expect revenues to decline in the range of 6-10%. Lower shipments of residential products due to higher field inventory levels for home standby generators are likely to cause the downturn. This includes a net favorable impact of 1-2% from acquisitions and foreign currency changes.

Net income margin (before deducting for non-controlling interests) is expected to be 7.5-8.5%. Adjusted EBITDA margin is estimated in the range of 17-18%.

Zacks Rank & Stocks to Consider

Generac currently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader technology space are Badger Meter BMI, Blackbaud BLKB and Arista Networks ANET. BMI currently sports a Zacks Rank #1 (Strong Buy) whereas Arista Networks and Blackbaud carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BMI’s 2023 earnings has increased 4.7% in the past 60 days to $2.69 per share. BMI’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 5.3%. Shares of BMI have improved 63% in the past year.

The Zacks Consensus Estimate for Blackbaud’s 2023 earnings has remained unchanged in the past 60 days at $3.43 per share. The long-term earnings growth rate is expected to be 10.4%.

Blackbaud’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average surprise being 6.2%. Shares of BLKB have gained 19% in the past year.

The Zacks Consensus Estimate for Arista Networks’ 2023 earnings is pegged at $5.78 per share. The long-term earnings growth rate is anticipated to be 14.2%.

Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 14.7%. Shares of ANET have increased 14.6% in the past year.

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