"Generac Suffers An Earnings Brownout

April 30 -- For most companies, tough weather conditions are always a negative. In the power-generator industry, though, companies like Generac Holdings have often thrived when bad storms bring power lines down and leave millions of residents without electricity from the grid. Still, coming into Thursday morning's first-quarter financial report, Generac investors were nervous about the fact that despite the cold winter, relatively few storm events had a major impact on the grid. As it turned out, Generac's quarter did fall short of what most investors had expected, but other factors that many wouldn't have thought of played a role in holding back the generator maker's results. Let's look more closely at Generac's latest results and what they mean for its future.

Generac's first-quarter performance reflected a considerable slowdown for the generator specialist. Revenue of $311.8 million was down almost 9% from year-ago levels, which was considerably worse than the 5% sales decline that most of those following the stock were looking to see. The impact on earnings was even more severe, with adjusted net income falling by about a third and earnings per share of $0.49 falling 20% below the consensus estimate among shareholders.

Neither of Generac's two major product lines performed well. The Commercial and Industrial division suffered the larger decline in revenue, with sales dropping 15% as Generac cited a decline in shipments to its customers in two key industries. Yet sales were also sluggish on the residential side, with revenue falling more than 4% on weaker than expected levels of power outages across its geographical market. In addition, tough winter conditions hampered installation efforts for many residential customers, slowing the rate of natural demand for the market.

Other factors also hit Generac. Gross margins fell 2 percentage points to 32.9%, with Generac having to absorb some costs due to the slowdown in key ports on the West Coast. Increased marketing and advertising expenses pushed operating expenses up more than 6% from the year-ago quarter.

CEO Aaron Jagdfeld took a long-term view on responding to the tough conditions. "The rapid decline in oil and gas related investment," Jagdfeld said, "coupled with continued softness in capital spending in the telecom sector had a negative impact on our [commercial and industrial] product shipments during the quarter." Jagdfeld noted the challenges of having multiple end markets perform badly at the same time.

Even with the winter having fallen short of expectations, Generac thinks that times will get better. As Jagdfeld put it, "Despite a softer demand environment in the near term, we remain focused on driving awareness for our products, expanding and developing out distribution, launching innovative new products, and controlling costs."

Still, improvement will take time, and the poor start to the year led Generac to cut its guidance for 2015. Generac now expects roughly flat sales for the year, even under the assumption that a slow power-outage environment in the first half of 2015 will give way to more typical conditions later in the year. Adjusted operating earnings are also likely to see growth disappear for the year, according to the company.

The good news, though, is that Generac has left itself far better diversified than it was in the past. With solid exposure to both industrial and residential applications, Generac isn't entirely vulnerable to the vagaries of the weather.

Still, investors were unhappy with Generac's results, sending the stock plunging 8% in the first two hours of pre-market trading following the announcement. Without the storm-driven demand that Generac has had in several past years, the company will have to prove to shareholders that it can keep growing even when Mother Nature doesn't make the need for its products eminently clear.

Dan Caplinger     www.fool.com

Generac Reports First Quarter 2015 Results

WAUKESHA, Wis. -- Apr. 30, 2015-- Generac Holdings Inc., a leading designer and manufacturer of power generation equipment and other engine powered products, today reported financial results for its first quarter ended March 31, 2015.

First Quarter 2015 Highlights

• Net sales were $311.8 million during the first quarter of 2015 as compared to $342.0 million in the prior-year first quarter.
• Residential product sales were $156.8 million during the first quarter as compared to $164.0 million in the prior-year quarter, primarily due to lower portable generator shipments resulting from a decline in power outage severity compared to the prior year.
• Commercial & Industrial (C&I) product sales were $133.8 million during the first quarter as compared to $157.4 million in the prior-year quarter, primarily due to a decline in shipments to telecom national account customers and, to a lesser extent, oil & gas markets.
• Net income during the first quarter of 2015 was $19.7 million, or $0.28 per share, as compared to $34.7 million, or $0.50 per share, for the same period of 2014. Adjusted net income, as defined in the accompanying reconciliation schedules, was $34.1 million, or $0.49 per share, as compared to $50.7 million, or $0.72 per share, in the first quarter of 2014.
• Adjusted EBITDA, as defined in the accompanying reconciliation schedules, was $57.1 million as compared to $77.5 million in the first quarter last year.
• Cash flow from operations in the first quarter of 2015 was $25.3 million as compared to $36.4 million in the prior year quarter. Free cash flow, as defined in the accompanying reconciliation schedules, was $18.7 million as compared to $31.4 million in the first quarter of 2014.
• For the trailing four quarters, including the first quarter of 2015, net sales were $1.431 billion; net income was $159.6 million; adjusted EBITDA was $316.9 million; cash flow from operations was $241.9 million; and free cash flow was $205.6 million.
• During the first quarter of 2015, the Company made a voluntary pre-payment of term loan debt of $50 million. Total liquidity at March 31, 2015 was strong with cash and cash equivalents on hand of $150.1 millionand approximately $150 million available on the Company’s ABL revolving credit facility. Total net debt to adjusted EBITDA, as defined in the accompanying reconciliation schedules, at the end of the first quarter was 2.8 times.

“The first quarter of this year was particularly challenging with several of the end markets we serve performing below our expectations,” said Aaron Jagdfeld, President and Chief Executive Officer. “With an extremely low power outage environment and difficult winter weather, shipments of residential products were weaker than expected. In addition, the rapid decline in oil and gas related investment coupled with continued softness in capital spending in the telecom sector also had a negative impact on our C&I product shipments during the quarter.

Despite a softer demand environment in the near term, we remain focused on driving awareness for our products, expanding and developing our distribution, launching innovative new products and controlling costs.”

Additional First Quarter 2015 Highlights

Residential product sales for the first quarter of 2015 were $156.8 million as compared to $164.0 million for the first quarter of 2014. The decline was primarily driven by a power outage severity environment during the quarter that was well below normalized levels and prior year, resulting in fewer shipments of portable generators. Additionally, although shipments for home standby generators were approximately flat during the quarter, heavy snow and colder temperatures in certain key regions limited growth for the category as installations were slowed by these conditions.

C&I product sales for the first quarter of 2015 were $133.8 million as compared to $157.4 million for the comparable period in 2014. The decline was primarily due to reduced shipments to telecom national account customers in the current year as a result of lower capital spending by certain of these customers and, to a lesser extent, reduced sales into oil & gas markets. Partially offsetting these declines were contributions from recent acquisitions and growth in Latin America.

Gross profit margin for the first quarter of 2015 was 32.9% compared to 34.9% in the prior-year first quarter. The decline was driven by a number of factors including a temporary increase in certain costs associated with the slowdown of activity in west coast ports, unfavorable absorption of manufacturing overhead-related costs, mark-to-market adjustments on commodity forward contracts, and the impact from recent acquisitions. These declines were partially offset by a more favorable mix of residential products.

Operating expenses for the first quarter of 2015 increased $3.5 million, or 6.4%, as compared to the first quarter of 2014. The increase was primarily driven by increased marketing and advertising expenses and the addition of recurring operating expenses associated with recent acquisitions.

2015 Outlook Update

As a result of current end market conditions, the Company is revising its prior guidance for revenue growth and adjusted EBITDA margins for the full year 2015.

Net sales for 2015 are now expected to be approximately flat as compared to the prior year, primarily the result of a power outage severity environment that is expected to remain below normal during the first half of the year, with the assumption of a return to more normalized baseline levels of outage activity during the second half.

Adjusted EBITDA for 2015 is also expected to be approximately flat as compared to the prior year, resulting in EBITDA margins of approximately 23.0% for the full year. Free cash flow is expected to remain strong for the full year 2015 due to an attractive margin profile, low cost of debt, favorable tax attributes and capital-efficient operating model.

“Although market conditions have been difficult so far in 2015, we believe many of these headwinds to be temporary in nature as the numerous long-term growth opportunities that impact our business remain firmly in place,” continued Mr. Jagdfeld.

“We have become a more diversified company in recent years, with a strong balance sheet and the capability to generate significant free cash flow, providing us with the flexibility to drive our Powering Ahead strategic plan forward.”

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, oil & gas, and construction markets, Generac's power products are available globally through a broad network of independent dealers, distributors, retailers, wholesalers and equipment rental companies, as well as sold direct to certain end user customers.

Generac Reports Fourth Quarter and Full-Year 2014 Results

Home standby shipments exceed internal expectations and drive sequential quarterly sales improvement in residential products, as increased sales from C&I products further diversifies business

WAUKESHA, Wis.-- Feb. 11, 2015-- Generac Holdings Inc., a leading designer and manufacturer of power generation equipment and other engine powered products, today reported financial results for its fourth quarter and full-year ended December 31, 2014. Additionally, the Company initiated its outlook for 2015.

Fourth quarter 2014 Highlights

• Net sales increased by 7.4% to $404.0 million as compared to $376.2 million in the prior-year fourth quarter.
• Commercial & Industrial (C&I) product sales increased 17.1% to $185.0 million as compared to $157.9 million in the fourth quarter of 2013. The increase in sales was primarily driven by strength in oil & gas markets and the contributions from recent acquisitions, partially offset by a decline in shipments to certain telecom customers.
• Residential product sales declined slightly to $194.9 million from $199.1 million for the fourth quarter of 2013, as the current-year quarter faced a strong prior-year comparison that still benefited from the afterglow period of demand from Superstorm Sandy. Residential product sales for the fourth quarter of 2014 improved 6.1% on a sequential basis from $183.7 million in the third quarter of 2014.
• Net income during the fourth quarter of 2014 was $49.4 million, or $0.70 per share, as compared to $48.5 million, or $0.69 per share, for the same period of 2013. Adjusted net income, as defined in the accompanying reconciliation schedules, was $68.4 million, or $0.98 per share, as compared to $77.5 million, or $1.11 per share, in the fourth quarter of 2013.
• Adjusted EBITDA, as defined in the accompanying reconciliation schedules, was $92.2 million as compared to $103.6 million in the fourth quarter last year.
• Cash flow from operations in the fourth quarter of 2014 was $110.5 million as compared to $104.7 million in the prior year quarter. Free cash flow, as defined in the accompanying reconciliation schedules, was a quarterly record of $98.5 million as compared to $88.2 million in the fourth quarter of 2013.
• Total liquidity at December 31, 2014 was strong with cash and cash equivalents of $189.8 million and approximately $150 million available on the Company’s ABL revolving credit facility. Total net debt to adjusted EBITDA, as defined in the accompanying reconciliation schedules, at the end of the fourth quarter was 2.7 times.

Full-Year 2014 Highlights

• Net sales were $1.461 billion during 2014 as compared to $1.486 billion in 2013.
• Residential product sales were $722.2 million as compared to $843.7 million in the prior year. The prior year benefited from approximately $140 million in incremental shipments as a result of satisfying the extended lead times that resulted from Superstorm Sandy, which did not repeat during 2014. Excluding this benefit in the prior year, residential product sales increased approximately 3%.
• Commercial & Industrial product sales increased 14.4% to $652.2 million as compared to $569.9 million in 2013. The increase was primarily due to the contributions from recent acquisitions along with strength in oil & gas markets, partially offset by reduced capital spending with certain telecom customers and overall softness within Latin America.
• Net income during 2014 was $174.6 million, or $2.49 per share, as compared to $174.5 million or $2.51 per share for 2013. Adjusted net income was $234.2 million, or $3.34 per share, as compared to $301.7 million, or $4.33 per share, in 2013.
• Adjusted EBITDA for 2014 was $337.3 million as compared to $402.6 million last year.
• Cash flow from operations during 2014 was $253.0 million as compared to $259.9 million in the prior year. Free cash flow was $218.3 million as compared to $229.2 million in 2013.
• The Company acquired Pramac America, LLC in early September, resulting in the ownership of the Powermate trade name and the right to license the DeWalt brand name for certain residential engine powered tools. In addition, the Company acquired MAC, Inc. and its related entities in early October, a leading manufacturer of premium-grade commercial and industrial mobile heaters within the U.S. and Canada.
• Uses of cash during 2014 included $34.7 million for capital expenditures, $61.2 million related to acquisitions and $87.0 million for the pre-payment of term loan debt, including a $25.0 million payment made during the fourth quarter.

“Home standby generator sales exceeded our expectations during the fourth quarter, with activation rates proving to be resilient as we leveraged our innovative sales and marketing techniques to help create awareness for the product category in a below-normal power outage environment,” said Aaron Jagdfeld, President and Chief Executive Officer.

“For full-year 2014, organic sales improved over 2013 when excluding the approximately$140 million sales headwind in the prior year from Superstorm Sandy, allowing us to hold a new and higher baseline of demand despite certain of our end markets performing below our expectations during the year.

In addition, the revenue base for our C&I products continued to increase in scale during 2014, and now represents nearly half of our total sales. We also once again generated a strong level of free cash flow, generating over$200 million for the third consecutive year. 

We enter 2015 as a more diversified company, with a strong balance sheet and free cash flow generation capability that provide us the flexibility to drive our Powering Ahead strategic plan forward.”

Additional Fourth Quarter 2014 Highlights

Residential product sales for the fourth quarter of 2014 improved on a sequential basis to $194.9 million from $183.7 million in the third quarter of 2014, primarily driven by a solid increase in home standby generators. Residential product sales declined slightly on a year-over-year basis from $199.1 million for the fourth quarter of 2013, which was a strong prior-year comparison that still benefited from the afterglow period of demand from the one-year anniversary of Super Storm Sandy. 

Also, the fourth quarter of 2014 continued to experience a power outage severity environment that remained well below normalized levels. These factors resulted in a modest year-over-year decline in both home standby and portable generator sales.

C&I product sales for the fourth quarter of 2014 increased 17.1% to $185.0 million as compared to $157.9 million for the comparable period in 2013. The improvement was driven primarily by strength in oil & gas shipments and contributions from recent acquisitions, which was partially offset by a decline in telecom shipments resulting from reduced capital spending by certain customers.

Gross margin for the fourth quarter of 2014 was 34.3% compared to 38.7% in the prior-year fourth quarter. The decline was driven by the combination of a higher mix of organic C&I product shipments, the impact from recent acquisitions, and a temporary increase in certain costs associated with the slowdown of activity in west coast ports as well as other overhead-related costs.

Operating expenses for the fourth quarter of 2014 increased $4.8 million, or 8.9%, as compared to the fourth quarter of 2013. The increase was driven by the addition of recurring operating expenses associated with recent acquisitions, a more favorable adjustment to warranty reserves in the fourth quarter of 2013 as compared to the current year, and increased marketing and advertising expenses.

2015 Outlook

The Company is initiating guidance for 2015 with net sales expected to increase in the low-to-mid-single digit range as compared to the prior year. This top-line guidance assumes no material changes in the current macroeconomic environment and no major power outage events during 2015, but does assume a more normalized baseline level of power outage severity during the year.

Adjusted EBITDA margins are expected to be approximately 23.5% to 24.0%, an improvement compared to 23.1% for 2014. Free cash flow generation is expected to remain strong in 2015 and grow from prior-year levels due to an attractive margin profile, low-cost of debt, favorable tax attributes and capital-efficient operating model.

“We remain excited about the numerous secular growth opportunities for our products, including the substantial penetration opportunity that exists for residential and light commercial standby generators,” continued Mr. Jagdfeld. “While the near-term outlook in certain end-market verticals such as telecommunications and oil & gas point to softer demand, we are optimistic about the long-term need for our products used in these applications, as well as the opportunity to increase our share of the C&I market through our recently expanded product offering.

In addition, we believe the overall secular shifts in the market toward natural gas generators and the rental of mobile power equipment remain in place. With our strong liquidity, we are confident in our ability to continue to invest in the future growth of the business, both organically and through acquisitions, while also further executing our diversification and international expansion strategies.”

UW-Whitewater Alum Shares Journey of Success

October 29 -- UW-Whitewater alumnus Aaron Jagdfeld has reached the heights that many people only dream of.

Jagdfeld, CEO of Generac, is a Milwaukee native who graduated from UW-Whitewater in 1993 with an accounting degree. He started his career at the public accounting firm, Deloitte. After spending a year in public accounting, he decided to join Generac.

He held different positions in the accounting department at Generac, and moved his way up to becoming the Chief Financial Officer (CFO) of the company. He became the CEO in 2008. Jagdfeld was recognized by Forbes magazine as one of America’s 20 most powerful entrepreneurs under 40 years of age.

He was invited by UW-Whitewater Innovation Center to talk about his journey and the story of Generac.

History of Generac

Generac is a manufacturing company that primarily manufactures residential, commercial and industrial products. It was the first to “engineer” home standby generators and is now the number one manufacturer of home backup generators, according to its website.

The company was founded by Bob Kern in 1959, who led the company until it was sold in 2006. He retired when he was 82 years old, Jagdfeld said.

Generac had humble beginnings, according to Jagdfeld. When Kern started the business, he was unable to pay the rent of the building, which got him evicted off the facility. He then moved to a different location to operate his business.

The company saw several bumps in the road even decades after its founding. Kern faced financial troubles during the early ’80s. He told Jagdfeld that he had less money in 1982, than he had in 1959 when he started the company.

Despite difficulties, Kern did not give up. He had a “never say die attitude” which kept him going, Jagdfeld said.

“He was in his 50s and he didn’t give up; it would have been easy to take a job  at Walmart or something, but he didn’t give up on it, and 30 years later his business is worth $2 billion,” Jagdfeld said.

“When I started the company we had 80 million dollars in sales, we had about 250 employees and that’s very different from today,” Jagdfeld said.

Generac operates with 3,400 employees and billions in sales.

Success strategy of Generac

Jagdfeld credits two things to Generac’s success: Innovation and acquisitions.

“You have got to constantly reinvent yourself, Jagdfeld said. “Just having one idea is a great way to start, but it’s not a very good way to finish.”

Generac was operated “organically” under Kern, according to Jagdfeld. The company did not do acquisitions until 2011.

“We turned to acquisitions to really broaden our portfolio, broaden the markets we are involved with, broaden our geographic scope which is really hard to do organically,” Jagdfeld said. “It’s one thing to grow organically in the U.S. it’s another thing to try and to grow organically in Europe, China, India, Italy or elsewhere.”

Jagdfeld emphasized that the key to a company’s success is continuous innovation.

“The reason we got to $2 billion was not because of the products we made in ’50s, it wasn’t because of the products in ’60s, ’70s or the ’80s; it was new products all the time,” Jagdfeld said.

He also said Generac follows a strategy called “Powering Ahead” which has been the basis for his company’s growth for the past 4 years.

“If you want your employees, your suppliers, your customers, your investors to understand what it is that you are doing, you have to be able to give your elevator speech,” Jagdfeld said. “You have 30 seconds to tell them what your strategy is and so the key to that is keeping the strategy very simple but broad enough that allows you enough flexibility to be able to grow organically and in our case inorganically through acquisitions.”

He said he tells his employees that if they start getting tired of hearing his strategy, it means it’s working.

Secret of Jagdfeld’s success

Success is hard work and having a strong work ethic. He said he strongly believes in making his own luck.

Jagdfeld said it was “cool” to receive recognition from Forbes, but there is one other achievement he is very proud of.

The alum was also a Track and Field athlete at UW-W, which he still values to this day.

“The only award I would say probably rivals that [Forbes] is the my Whitewater Athletic Achievement award,” Jagdfeld said. “I had a decent career. It was cool to be able to have that kind of recognition from the athletic department here.”

He said most sports in college are all-year round, incuding track, and being able to balance sports with college and succeed at both is more of a challenge than one thinks.

Jagdfeld said his comapny has recently bought a facility in Oshkosh. It has also acquired a facility in Nebraska, South Dakota, and Georgia.

Generac has plants in foreign countries such as Brazil, Italy and United Kingdom too.

“We are starting to expand our business outside of USA, but those are only about 14 percent of our revenues outside North America,” Jagdfeld said. “We have a long way to go to be a really, truly international business, but we are acquiring our way there and kind of growing into that.”

Jagdfeld said the company was made public in 2010 and is now traded on New York Stock Exchange.

Rumasa Noor      http://royalpurplenews.com/

Generac Acquires North Dakota Mobile Heater Manufacturer

October 2 -- Waukesha-based Generac Holdings Inc., a designer and manufacturer of generators and other small engine powered products, has acquired Bismarck, N.D.-based MAC Inc. and its related entities.

MAC is a leading manufacturer of premium-grade commercial and industrial mobile heaters in the U.S. and Canada. It has about 100 employees.

 “The acquisition of MAC is an exciting development for Generac as it further expands our growing mobile products platform by adding a strong brand of industrial heaters and increases our access to the projected long term up-cycle in the oil and gas market,” said Aaron Jagdfeld, president and chief executive officer of Generac. “In addition to gaining immediate access to a broad lineup of mobile heating equipment that is essential to colder climate oil & gas and construction sites, this acquisition creates cross-selling opportunities with our existing mobile products distribution.”

The MAC management team will continue to lead the company, and the MAC product brand will be retained and will join Generac's family of brands. The purchase agreements were executed and the transaction simultaneously closed on Wednesday.  The purchase price and terms of the transaction were not announced.

“We’ve worked hard to build MAC into a great company, and we believe that partnering with Generac best positions our organization for continued growth,” said Michael Seifert, president and chief executive officer of MAC Inc. “We are excited to be joining the Generac team, and we see many synergies for both companies as a result of this transaction.”

MAC primarily serves the oil & gas and construction markets, as well as other industrial sectors through national equipment rental companies and independent dealers. MAC’s line of flameless, indirect-fired and hydronic surface heaters are recognized as some of the safest, most reliable and efficient machines in the market.

www.biztimes.com

Generac to Hire 100 Statewide

MILWAUKEE -- September 24 -- Waukesha-based Generac Power Systems Inc. today announced it will hire 100 employees in Southeastern Wisconsin, the Fox Valley, Berlin and Oshkosh.

The company, which designs and manufactures generators and other small engine powered products, said the positions will be in customer support, inside sales, engineering and operations. It is encouraging applicants of all levels to attend a job fair tomorrow at its Whitewater facility, 757 N. Newcomb St., from 10 a.m. to 3 p.m.

Generac, which announced the hiring plans at a media day in Whitewater today, also revealed changes to its manufacturing plant that are aimed at attracting a younger workforce that wants tech-savvy careers. It has updated its manufacturing lines to digital machinery. The company said it has had some difficulty recruiting employees in southeastern Wisconsin.

Generac has more than 70 percent of the home standby generator market share nationwide. It has benefited from the rapidly growing residential generator market that has resulted from a rising number of power outages that generator manufacturers attribute to aging power grids and several severe storms that have knocked out power to large areas of the country.

In an October 2013 interview with BizTimes Milwaukee, Generac president and chief executive officer Aaron Jagdfeld said he anticipates Generac's home standby business will grow at between 11 and 13 percent annually going forward.

The company also held a job fair in Oshkosh in May in an effort to fill 100 positions company wide. The majority of the  positions announced today are new, said company spokesman Art Aiello.    

The new positions are "simply part of our continued growth," Aiello said. "Nothing in particular triggered this. We just want to make sure we are staffed appropriately.

www.biztimes.com    

Generac Reports Second Quarter 2014 Results

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.

After Decades of Exodus, Companies Returning Production to the U.S. (Generac)

May 13 -- In 2001, Generac Power Systems joined the wave of American companies shifting production to China. The move wiped out 400 jobs in southeast Wisconsin, but few could argue with management's logic: Chinese companies were offering to make a key component for $100 per unit less than the cost of producing it in the U.S.

Now, however, Generac has brought manufacturing of that component back to its Whitewater plant — creating about 80 jobs in this town of about ‎14,500 people.

The move is part of a sea change in American manufacturing: After three decades of an exodus of production to China and other low-wage countries, companies have sharply curtailed moves abroad. Some, like Generac, have begun to return manufacturing to U.S. shores.

Although no one keeps precise statistics, the retreat from offshoring is clear from various sources, including federal data on assistance to workers hurt by overseas moves.

U.S. factory payrolls have grown for four straight years, with gains totaling about 650,000 jobs. That's a small fraction of the 6 million lost in the previous decade, but it still marks the biggest and longest stretch of manufacturing increases in a quarter century.

Harry Moser, an MIT-trained engineer who tracks the inflow of jobs, estimates that last year marked the first time since the offshoring trend began that factory jobs returning to the U.S. matched the number lost, at about 40,000 each.

"Offshoring and 're-shoring' were roughly in balance — I call that victory," said Moser, who traces his interest in manufacturing to his parents' work at the long-closed Singer Sewing Machine plant in New Jersey. (He once worked there too.)

He now runs the Reshoring Initiative, a Chicago nonprofit that works with companies to bring manufacturing jobs back to the U.S.

Several factors lie behind the change.

Over the last decade, Chinese labor and transportation costs have jumped while U.S. wages have stagnated. The average hourly pay for non-supervisory manufacturing workers in the U.S. has barely kept up with inflation, rising on average just 2.3% over the last 10 years and by only half that since 2010, according to Labor Department figures.

Factoring in the rise in value of its currency, China's base wage, measured in dollars, has risen 17% a year, according to an April report by Boston Consulting Group.

Manufacturing also has become more automated, further reducing labor's weight in the cost equation.

The boom in natural gas production in the U.S., largely driven by fracking and other new drilling techniques, has led to a 25% decrease in gas prices in the U.S., contrasted with a 138% increase in China, Boston Consulting found.

And the rise of online commerce has made local control of supply chains more important, especially because many U.S. manufacturers report growing problems with quality control of goods made in China.

"We got to the point where everything we were bringing in had to be inspected," says Lonnie Kane, president of Los Angeles apparel maker Karen Kane, noting that his company used to check just 10% of goods from China.

"Now prices are escalating, quality is dropping and deliveries are being delayed," he says. In the last three years, Kane has shifted 80% of his production from China back home.

Expansion in the domestic apparel industry remains unusual because the labor-intensive work can be done in many low-wage countries. But in other industries, a growing number of domestic and foreign companies — including General Electric, Caterpillar, Toyota and Siemens — are opting to build or expand their facilities in the U.S., particularly in the Southeast, where labor costs are relatively low.

The main reason companies relocate out of California to places like Texas is the average home price in Dallas is $192,000 versus the average home price in Los Angeles which is over $500,000. The difference in taxes in minor compared to a corporations ability to hire the same worker in Texas who...

For the first time, some small contract manufacturers in the U.S. are beating bigger rivals in Asia, the center of global industrial production.

At Zentech Manufacturing in Baltimore, the company's president, Matt Turpin, recalls his skepticism when salesmen told him two years ago about their efforts to land a contract making 5,000 to 10,000 wireless printers. He was sure an overseas competitor would get the work.

"I don't know why you're wasting your time chasing that business," he says he told the sales force.

Zentech ultimately won the contract, and Turpin says the company added at least five full-time employees to his shop, where the front office window is draped with a large American flag.

William Davidson, a test technician at Zentech, now earns $17.50 an hour working on those printers and other company products. Before getting hired at Zentech three years ago, Davidson, 62, had been unemployed for 18 months. His previous employer, a Delaware repairer of cable boxes, had moved its operations to Mexico.

"The worst part of it was we had to help them pack things up for the move," he says.

Here in Wisconsin, a similar story has played out with Generac.

Aaron Jagdfeld, the company's chief executive, was the comptroller at the time of the offshoring. Jagdfeld, now 42, had grown up in the region and graduated from the University of Wisconsin at Whitewater with an accounting degree.

The offshoring "didn't feel right" because of the families affected by layoffs, he said, but the company needed to make the move to remain competitive.

Generac grew rapidly over most of the rest of the decade. Its sales rose to $1.5 billion last year, and it now has about 3,300 workers, including 720 in Whitewater, its largest plant. But the last decade also saw costs surge in China while they increased little in the U.S.

What began as a $100 gap in the cost of producing an alternator narrowed as the Chinese yuan jumped in value and Chinese wages and other costs soared.

The tipping point came when Generac had enough sales to justify investing millions of dollars in new equipment for the Whitewater plant. The company can now produce an alternator with one worker in the time it took four workers in China.

Although a small price gap remains, Jagdfeld figured that having greater control over delivery would make up the difference.

More frequent power outages —from Hurricane Katrina and Superstorm Sandy, not to mention this past winter's ice storm in the South — have brought bursts of orders for portable generators, challenging the company's inventory and delivery capabilities.

"We were constantly fighting a battle for what product was needed, and we were always guessing wrong," Jagdfeld said. "We kept saying, 'If we could just control the alternator, we'd have a better opportunity to respond more effectively.'"

Those sorts of calculations lead experts who have studied reshoring to see potential — particularly for makers of appliances, transportation equipment, electronics and machinery — to return jobs to the U.S.

Led by these industries, 21% of large manufacturers in the U.S. said they were already returning production or would do so over the next two years, according to a survey Boston Consulting conducted last summer.

"In 2012, companies told me 'you're crazy,'" said Hal Sirkin, a senior partner at the consulting group's office in Chicago. "Now they're doing it — maybe not all the way, but they're testing the waters."

www.latimes.com/business        Don Lee