Generac CEO Aaron Jagdfeld Generates a Champion

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