Jagdfeld's Keys
• Has
overseen Generac's 400% stock romp.
• Overcame:
The recession of 2008-09.
• Lesson:
Act decisively.
• "Certain
situations call for a healthy sense of urgency. If the situation is important
enough, you have to be able to drive people forward at a fast pace."
August 27 -- Aaron
Jagdfeld provides plenty of energy with his management style.
Good thing.
Running on his spark,
Generac Power Systems overcame the power outage of the recession.
The timing for
Jagdfeld was a drag as he started his stint as CEO.
Generac was North
America's No. 1 maker of home standby generators, but it was September 2008.
The economy was
tanking on the heels of the housing slump that began in 2007 — causing Generac
to lose steam.
That was Jagdfeld's
cue to rev up the business. Fast.
"I'm a very
detail-oriented person and come from the angle of having to know all the
details to help me make decisions" Jagdfeld, 41, told IBD. "I take
the information and assimilate it quickly into making a decision."
Using that approach, he
made the bold decision to re-enter the portable generator market in 2008.
Here's how they work:
Generac's standby
generators operate on natural gas or liquid propane and are permanently
installed with an automatic transfer switch, which Generac also manufactures.
Its portable
generators are fueled by gasoline. They serve as an emergency home backup and
are also used for construction and recreational purposes.
That 2008 move came a
decade after Generac sold its portable business to Beacon Group.
A non-compete clause
with Beacon expired a year before Jagdfeld became CEO — and he seized the
chance to move back into the market.
"We needed to be
there quickly because the rest of our markets were softening," said
Jagdfeld.
By 2012, Generac had reclaimed its spot as
North America's No. 1 maker of portable generators, a category it created when
it was founded in 1959. Generac is also the leading maker of home and
commercial standby generators.
Thanks to Jagdfeld's
fast-paced style, Generac emerged from the downturn with vigor.
Business has surged
since its February 2010 IPO. In 2012, sales climbed 48.5% to $1.176 billion.
Profit leapt 47% to $3.19 a share. That followed a 33.6% rise in profit and 34%
pop in sales in 2011.
Its share price has
soared along with it, rising 400% since that first day of trading in February
2010.
"That decision to
re-enter the portable generator business and speed of action in 2008 were
absolutely critical to us staving off any major negative outcomes as a result
of the rest of our company's business turning down during that period,"
said Jagdfeld, who's been with the company since 1994.
Complementing his
speed, Jagdfeld weighed that decision to jump back into portable generators
carefully, then re-entered the field with a clear understanding of its needs.
The CEO knew that
Generac had a long history of making portable generators. And he had a strong
knowledge of that product.
Portable generators
can be stored and pulled out of storage when necessary. They typically run on
gasoline and have outlets on the outside where owners can plug in extension
cords and run them to the appliances they want to back up. The generators have
to be operated manually during a power outage.
A standby generator is
permanently installed and connected to the home's electrical service. When the
power goes out, it detects the outage, starts up automatically and delivers
power through the home's electrical system. These units typically run on
natural gas or liquefied petroleum, so they have long running times and don't
typically require refueling.
Jagdfeld knew his firm
had heavy resources in engineering, operations, sales and marketing as he
entered the portable generator market. Meanwhile, he developed one of the
broadest offerings in the industry. And using Generac's long retail
relationships, he quickly got its generators into stores.
With a stronger
balance sheet after its initial public offering, Generac was able to invest in
the inventory to meet heavy demand. That came in handy as buyers bulked up on
generators during the massive power outages of Hurricanes Irene in 2011 and
Sandy in 2012.
Jagdfeld has been high
up the Generac food chain since 2002, when he became chief financial officer.
In 2007 he rose to president, a job he maintains along with CEO.
Jagdfeld was
instrumental in managing the sale of Generac to CCMP Capital Advisors in a
leveraged buyout in 2006. And he led the company's transition to a public
company with its 2010 IPO.
"He's had an
excellent transition from a private-company CEO to a public-company CEO, which
is a major transition,"said KeyBanc Capital Markets analyst Jeffrey
Hammond. "The company went public in February 2010 at $13 per share and is
now trading in the low $40s, and you have had two special dividends totaling
$11 a share — $6 in June 2012 and $5 in June 2013. So the total shareholder
return to date has made for a pretty compelling story."
Meanwhile, Jagdfeld
planned to keep Generac No. 1 in the home standby generator category. He's done
exactly that as chief executive, but it hasn't been easy.
Soon before he took
over the firm's top post, rivals started knocking on the space more
aggressively. Generac was "probably vulnerable" to this renewed push
because his firm's product line hadn't been updated in years, he noted.
So Jagdfeld made his
own push, ordering a redeveloping of Generac's products to create "the
line of the future." The company changed the look of its products on its
website. It added tech features to ensure the generator could be installed
closer to the home, to adhere to national fire codes.
Jagdfeld also
structured a sales team to better serve retailers.
"We made a big
bet and spent millions of dollars to create a sales force," he said.
"We put about 25 people into field at the time. That helped strengthen our
relationships with distributors and helped fend off the competitive
threat."
Thanks to those moves,
Generac still holds the top slot among generator sellers with a 70% share.
Russ Minick, executive
vice president of Generac's residential products, lauds his boss' management:
"I have worked a few places and see Aaron as having a high-energy,
high-pace style. We stretch and get a lot done compared to a lot of companies
because of the pace he sets."
Jagdfeld admits 2010
probably wasn't the best environment for an IPO. The stock market wasn't making
it easy for new issues.
But that didn't stop
the man in his tracks. After all, his German name means hunting field. "We
looked at it as though the company had a lot of long-term potential, but needed
to fix the capital structure permanently," he said. "We saw an IPO as
a way to pay down more debt and get the balance sheet in a better place. That's
why we priced at the bottom of the range. We believed in the long-term
opportunity."
The CEO and his team
got that message across — and the IPO was on its way upward.
So was Jagdfeld, who
uses his energetic communication to spark employees. "I can get people
pretty excited about things by talking about the good things about the
company," he said.
Generac, headquartered
in Waukesha, Wis., produces inverter generators, commercial backup generators,
industrial backup power systems and power washers. They're made across four
facilities in southeastern Wisconsin. Instead of dealerships or stores of its
own, Generac sells its machines in national home and hardware stores.
Jagdfeld, a native of
Milwaukee, holds a bachelor's degree in business administration from the
University of Wisconsin. He joined the audit practice at Deloitte & Touche
and discovered Generac, which was a client. He saw its growth potential right
away.
In 1994, after he had
been with Deloitte a year, he got a call from Generac's chief financial officer
to join the team. He leapt and got on board the firm's finance department that
May.
Jagdfeld was drawn to
Generac because of its generator. "I liked to take things apart as a kid
to see how they worked," he said. "I like to understand the details
about the mechanical nature of products."
Generac's
manufacturing environment and the process of making its machines especially
piqued his curiosity. Now he's generating even more interest as CEO.
Marilyn Much, Investor’s Business Daily www.news.investors.com
