Strong home standby shipments drive sequential sales improvement
in residential products as increased sales from C&I products further diversifies
business
WAUKESHA, Wis.-- July 31 -- Generac
Holdings Inc., a leading designer and manufacturer of power generation
equipment and other engine powered products, today reported financial results
for its second quarter ended June 30, 2014.
SECOND QUARTER 2014
HIGHLIGHT
-- Net sales increased over the prior year
by 4.6% to $362.6 million as
compared to $346.7 million in the second
quarter of 2013.
-- Commercial & Industrial
(C&I) product sales increased 22.5% to
$163.5 million as compared $133.4
million in the prior-year second
quarter, primarily due to the
contribution of recent acquisitions
and continued strength in the oil
& gas market.
-- Residential product sales were
$179.6 million during the second
quarter of 2014 as compared to
$196.6 million in the prior year
quarter. The prior year second
quarter benefited from
approximately $40 million in
shipments due to Superstorm Sandy.
Excluding this prior year benefit,
residential product sales
increased approximately 15%
primarily as a result of strong home
standby generator shipments.
-- Net income during the second quarter of
2014 was $54.0 million, or $0.77
per share, as compared to $28.3 million,
or $0.40 per share, for the same
period of 2013.
-- Adjusted net income, as defined in the
accompanying reconciliation
schedules, was $57.1 million, or $0.82
per share, as compared to $66.6
million, or $0.95 per share, in the
second quarter of 2013.
-- Adjusted EBITDA, as defined in the
accompanying reconciliation schedules,
was $84.5 million as compared to $90.1
million in the second quarter last
year.
-- Cash flow from operations in the second
quarter of 2014 was $48.9 million
as compared to $36.1 million in the prior
year quarter. Free cash flow,
as defined in the accompanying
reconciliation schedules, was $40.5
million as compared to $30.3 million in
the second quarter of 2013.
-- For the trailing four quarters, including
the second quarter of 2014, net
sales were $1.444 billion; net income was
$184.3 million; adjusted EBITDA
was $365.7 million; cash flow from
operations was $270.9 million; and
free cash flow was $236.9 million.
"Our second
quarter results for residential products were seasonally higher as we saw
shipments increase as compared to the first quarter of 2014 due to strength in
home standby generators. We remain focused on a number of key initiatives to
continue to grow the market, further building on our leadership position in
this product category," said Aaron Jagdfeld, President and Chief Executive
Officer.
"C&I products
continue to represent a growing portion of our sales as we have recently
increased our exposure to new markets such as oil & gas, broadened our
industrial product line, and strengthened our industrial distribution network
to further diversify our business. We also continue to convert a significant
amount of our earnings to free cash flow, providing us with the flexibility to
drive our Powering Ahead strategic plan forward."
ADDITIONAL SECOND
QUARTER 2014 HIGHLIGHTS
Residential product
sales for the second quarter of 2014 were $179.6 million as compared to $164.0
million in the first quarter of 2014, and as compared to $196.6 million for the
second quarter of 2013. Sales of residential products during the prior-year
second quarter were positively impacted by approximately $40 million in
incremental shipments as a result of satisfying the extended lead times that
resulted from Superstorm Sandy, which did not repeat during the second quarter
of 2014.
Excluding this benefit
in the prior year quarter, residential product revenue increased approximately
15% during the current year quarter, driven by strong shipments of home standby
generators. In addition, increased revenue from power washer products
contributed to this year-over-year sales growth in residential products.
C&I product sales
for the second quarter of 2014 increased 22.5% to $163.5 million from $133.4
million for the comparable period in 2013. The improvement was driven primarily
by contributions from recent acquisitions and strength in oil & gas end
markets, along with increased sales of natural gas generators used in light
commercial and retail applications.
Partially offsetting
this strength was a year-over-year decline in sales within Latin America driven
by the combination of a difficult prior-year comparison related to certain
large projects which did not repeat, as well as overall economic softness in
the region.
Gross profit margin
for the second quarter of 2014 was 35.3% compared to 37.8% in the prior-year
second quarter. Gross margin was impacted over the prior year due to the
addition of recent acquisitions along with a return to regular promotional
activities consistent with a period of normal seasonality.
Operating expenses for
the second quarter of 2014 declined $4.7 million, or 8.6%, as compared to the
second quarter of 2013, primarily driven by a $4.9 million gain recorded in the
current year quarter relating to a re-measurement of a contingent earn-out obligation from a recent
acquisition. Excluding this gain, operating expenses were approximately flat
relative to prior year despite the addition of SG&A costs associated with
recent acquisitions.
Interest expense in
the second quarter of 2014 declined to $11.4 million compared to $14.3 million
in the same period last year, resulting from a reduction in interest rate from
the credit agreement refinancing completed in May 2013. In conjunction with the
May 2013 refinancing and other debt prepayments made in the prior year quarter,
a $13.5 million loss on extinguishment of debt was recorded during the second
quarter of 2013.
Beginning in the
second quarter of 2014, there was a further 25 basis point reduction in
borrowing costs as a result of the leverage ratio as defined in the credit
agreement falling below 3.0 times, resulting in a $16.0 million non-cash gain
being recorded in the current year quarter.
2014 OUTLOOK
The Company is
reaffirming its prior guidance for 2014 in terms of revenue growth, EBITDA
margins and cash flows. For the full-year 2014, the Company still expects net
sales to increase in the mid-single digit range as compared to the prior year.
This sales outlook assumes an increased level of power outage severity in the
second half of 2014 as compared to recent quarters, returning to a more
normalized annual baseline level.
Adjusted EBITDA
margins are expected to remain in the mid-20% range as previously guided, which
are consistent with the average levels seen during the past four years. Free
cash flow is still expected to be approximately 90% of full year 2014 adjusted
net income.
"We remain
excited about the compelling penetration opportunities for our residential and
light commercial standby generators as we continue to focus our efforts on
several high impact initiatives to increase the adoption for these
products," continued Mr. Jagdfeld.
"These
initiatives are targeted at improving the awareness, availability and
affordability of standby generators and are highlighted by our innovative sales
and marketing processes, our efforts to increase and develop distribution, and
our introduction of new products. In addition, we have several initiatives
aimed at increasing our share of the C&I market by leveraging our recently
expanded product offering.
We also believe the
overall secular trends toward natural gas generators, rental of mobile power
equipment, and the penetration of certain end markets such as
telecommunications and oil & gas will continue to drive additional growth.
Through the execution of our Powering Ahead strategic plan, we expect to
capitalize on these long-term opportunities, while also becoming a more
balanced company as we further implement our diversification and international
expansion strategies."
ABOUT GENERAC
Since 1959, Generac
has been a leading designer and manufacturer of a wide range of power
generation equipment and other engine powered products. As a leader in power
equipment serving residential, light commercial, industrial and construction
markets, Generac's power products are available globally through a broad
network of independent dealers, retailers, wholesalers and equipment rental
companies, as well as sold direct to certain end user customers.
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