A month has gone by since the last earnings report for Generac Holdings (GNRC). Shares have added about 1.7% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Generac Q3 Earnings Beat Estimates,
Generac reported third-quarter 2022 adjusted earnings of $1.75 per share, which beat the Zacks Consensus Estimate by 8%. However, the bottom line decreased 25.5% year over year.
Net sales increased 15% year over year and came in at $1.09 billion but missed the consensus mark by 0.1%. Robust demand for Commercial & Industrial (C&I) products boosted Generac’s third-quarter performance.
In the quarter under review, Core sales growth (excludes the impact of acquisitions and foreign currency) increased 10% year over year
Quarter in Details
Segment-wise, Domestic revenues increased 18% year over year to $946.6 billion, driven by the impact of acquisitions that contributed nearly 8% to revenues. Higher demand for home standby generators and strength across C&I products were the driving factors.
International revenues rose 14% to $182.5 million, driven by strong performance across all regions, especially in Europe. The impact of acquisitions and forex contributed nearly 8% net headwind to revenues.
Product-wise, revenues from Residential soared 9% to $664 million. Revenues from C&I were $311 million, up 20% from the year-ago quarter’s levels. Revenues from the Other product class came in at $113 million, up 49.5% year over year.
Residential Products business was affected despite increasing year over year. This was due to installation capacity constraints in the company’s distribution network which led to greater field inventory levels and lower home standby generator orders from the company’s channel partners than anticipated.
Also, the shipments of clean energy products were highly impacted during the quarter by a leading customer who has stopped its operations and filed for bankruptcy protection.
Gross profit was $361.1 million, up from $336 million, with respective margins of 33.2% and 35.6%. The gross profit margin declined due to higher input costs, unfavorable sales mix and the impact of a recent acquisition partly offset by pricing actions.
Operating expenses were $273.5 million, up 68.4% from the prior-year quarter’s levels. The uptick was caused due to $37.3 million in warranty-related costs for clean energy products along with $17.9 million in bad debt expense associated with a customer that filed for bankruptcy. However, higher marketing expenses on home standby generators, a rise in employee costs and the impact of acquisitions were other expenditures.
Operating income came in at $87.5 million, down 49.6%. Adjusted EBITDA was $184 million compared with $209 million in the year-ago quarter.
Cash Flow & Liquidity
In the third quarter, the company used $56 million of net cash from operating activities. Free cash outflow came in at $73.5 million.
As of Sep 30, 2022, the company had $229.9 million in cash and cash equivalents with $1.283 billion of long-term borrowings and finance lease obligations.
In the quarter under review, the company repurchased shares worth $123.9 million, thereby exhausting its earlier existing share buyback authorization.
In July 2022, the company announced a new stock repurchase program for $500 million, expanding over a 24-month period.
For 2022, Generac expects revenue growth between 22% and 24% compared with the previous guidance of 36-40%. 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 9-10%. The adjusted EBITDA margin is estimated in the range of 18-19%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -12.36% due to these changes.
Currently, Generac Holdings has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Generac Holdings has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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