May 1 -- Generac Holdings Inc. reported weak results for the first
quarter of 2014, with both earnings as well as revenues declining year over
year. Adjusted earnings per share for the reported quarter came in at 72 cents,
missing the year-ago earnings by a significant 40.5%. Results also missed the
Zacks Consensus Estimate by a cent.
On a GAAP basis, Generac's earnings per share of 50 cents,
compared unfavorably with 73 cents reported in the first quarter of 2013. The
decline in earnings was primarily a result of reduction in revenues.
Revenues
Generac recorded net sales of $342.0 million, down 14.4% year
over year, primarily due to reduction in the Residential Products segment.
Reported revenues also missed the Zacks Consensus Estimate of $352.0 million.
Revenues from Residential products dropped 35.7% year over year
to $164.0 million. The downside was primarily due to unfavorable temperature
and snow, resulting in delayed installations and lower demand for home standby
generators. Moreover, first-quarter 2013 revenues were positively impacted by
super-storm Sandy.
The Commercial & Industrial products revenues grew 23.8%
year over year to $157.4 million due to increased contributions from
acquisitions as well as improvement in organic sales.
Costs/Margins
Cost of goods sold in the first quarter decreased 9.6% year over
year and represented 65.1% of total revenue, up from 61.6% in the year-ago
quarter. Gross margin fell by 350 basis points year over year. As a percentage
of total revenue, selling and service, research and development, and general
and administrative expenses were 14.3% versus 12.7% in the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA)
margin were 22.7%, registering 450 basis points (bps) year-over-year decline.
Balance Sheet
Exiting the first quarter of 2014, Generac's cash and cash
equivalents stood at $173.7 million versus $150.1 million in the preceding
quarter. Long-term borrowings and capital lease obligations were $1,172.4
million, down marginally from $1,175.3 million in the fourth quarter of 2013.
Cash Flow
In the reported quarter, Generac garnered roughly $36.4 million
cash from operating activities, down nearly 5.0% year over year. Capital
spending increased 14.0% year over year to $4.9 million. Lower cash flow and higher
capital expenditure led to 7.4% decline in free cash that came in at $ $31.4
million.
Outlook
Based on the current results, management reiterated its
expectations for 2014. Sales in 2014 are expected to grow in the mid-single-digit
range year over year. Generac expects gross margin to decrease roughly 100 bps
year over year in 2014, while operating expenses, as a percentage of sales, are
anticipated to increase 100 bps year over year. Adjusted EBITDA margin is
expected in the mid-20% range.
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