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.

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Generac Reports First Quarter 2014 Results

WAUKESHA, Wis.-- May 1, 2014 -- 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, 2014.

First Quarter 2014 Highlights

Net sales were $342.0 million as compared to $399.6 million in the first quarter of 2013.

Commercial & Industrial (C&I) product sales increased 23.8% to $157.4 million as compared $127.1 million in the prior-year first quarter, due to a combination of acquisitions and continued organic growth.

Residential product sales were $164.0 million during the first quarter of 2014 as compared to $255.2 million in the prior year quarter. The prior year first quarter benefitted from elevated demand due to Superstorm Sandy, while the first quarter of 2014 was negatively impacted by colder temperatures and snow cover which delayed installations and slowed demand for home standby generators.

Net income during the first quarter of 2014 was $34.7 million, or $0.50 per share, as compared to $50.7 million or $0.73 per share for the same period of 2013.

Adjusted net income, as defined in the accompanying reconciliation schedules, was $50.7 million as compared to $83.9 million in the first quarter of 2013. Adjusted diluted net income per share was $0.72 as compared to $1.21 per share in the first quarter of 2013.

Adjusted EBITDA, as defined in the accompanying reconciliation schedules, was $77.5 million as compared to $108.8 million in the first quarter last year.

Cash flow from operations in the first quarter of 2014 was $36.4 million as compared to $38.3 million in the prior year quarter. Free cash flow, as defined in the accompanying reconciliation schedules, was $31.4 million as compared to $33.9 million in the first quarter of 2013.

For the trailing four quarters, including the first quarter of 2014, net sales were $1.428 billion; net income was $158.6 million; adjusted EBITDA was $371.3 million; cash flow from operations was $258.0 million; and free cash flow was $226.7 million.

“We are pleased with our overall financial results for the quarter as they were in line with our expectations. Shipments of residential products during the first quarter were more typical of the seasonality we historically see in winter months, which was magnified in the current season with heavy snow and colder temperatures delaying installs of residential standby units, ” said Aaron Jagdfeld, President and Chief Executive Officer. 

“Shipments of C&I products were again strong during the quarter as a result of continued organic growth and the contribution from recent acquisitions. Through a combination of our internal growth initiatives and M&A activity, we remain focused on driving a new and higher baseline of demand for our products, while also becoming a more diversified company with improved global scale.”

Additional First Quarter 2014 Highlights

Residential product sales for the first quarter of 2014 were $164.0 million as compared to $255.2 million for the comparable period in 2013. Sales of residential products during the prior-year first quarter of 2013 were positively impacted by approximately $100 million in incremental shipments as a result of satisfying the extended lead times that resulted from Superstorm Sandy, which did not repeat during the first quarter of 2014. Excluding this benefit in the prior year quarter, residential product revenue increased during the first quarter of 2014, driven by higher shipments of portable generators.

C&I product sales for the first quarter of 2014 increased 23.8% to $157.4 million from $127.1 million for the comparable period in 2013. The increase was driven by recent acquisitions along with solid organic growth for stationary generators and light towers. The strength in organic revenues was primarily driven by an increase in shipments to national account customers.

Gross profit margin for the first quarter of 2014 was 34.9% compared to 38.4% in the prior-year first quarter. Gross margin was impacted over the prior year primarily due to a notably higher mix of organic C&I product shipments and lower mix of home standby generators, together with the impact of recent acquisitions.

Operating expenses for the first quarter of 2014 declined $2.7 million, or 4.8%, as compared to the first quarter of 2013. The expense reduction was driven primarily by a decline in warranty expense driven by warranty rate improvements in recent quarters, partially offset by the addition of operating expenses associated with recent acquisitions.

Interest expense in the first quarter of 2014 declined to $11.7 million compared to $15.7 million in the same period last year, the result of a reduction in interest rate from the credit agreement refinancing completed in May 2013.

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 top-line guidance assumes no material changes in the current macroeconomic environment, no major power outage events for the remainder of 2014, and no benefit from additional acquisitions.

Adjusted EBITDA margins are expected to remain in the mid-20% range as previously guided, as a higher mix of C&I product shipments relative to prior expectations is projected to be offset by reduced operating expenses. These attractive margins are consistent with the average levels seen during the past four years.

“We expect to continue to benefit from the long-term secular growth drivers for our business,” continued Mr. Jagdfeld. “Given the relatively low penetration for both residential and light-commercial standby generators, we believe there is a substantial opportunity for long-term growth as the leader in these emerging product categories.

We are also optimistic about the increasing need for our products used in certain end-market verticals such as telecommunications and oil & gas, as well as the overall ongoing secular shifts in the market toward natural gas generators and the rental of mobile power equipment. As we continue to execute on our Powering Ahead strategic plan, we are confident in our ability to continue to invest in the future growth of the business, both organically and through acquisitions.”

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.

Generac Misses on Quarter 1 Earnings

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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Generac Reports Fourth Quarter and Full-Year 2013 Record Revenues

Diversified growth drives strong increase in revenue and earnings as compared to a very strong prior-year quarter and full year

WAUKESHA, Wis., Feb 13, 2014 -- 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 year ended December 31, 2013. Additionally, the Company initiated its outlook for 2014.

Fourth Quarter 2013 Highlights

Full-Year 2013 Highlights

“2013 was another great year for Generac that helped drive a third consecutive year of record revenues with a compounded annual growth rate of 36% since implementing our Powering Ahead strategy three years ago,” said Aaron Jagdfeld, President and Chief Executive Officer. “Once again we experienced strong growth across all regions of the United States, as home standby generators further gain in popularity and the Generac brand is increasingly recognized as the leading name in backup power.

The secular penetration themes that drive our business continue to play out for our residential and C&I products as we made significant progress on several initiatives to extend awareness for standby generators, leading to further growth. In addition to our organic growth, we executed on three important acquisitions that provide additional product breadth and global scale to our C&I business and improved balance to the overall company.”

Additional Fourth Quarter 2013 Highlights

Residential product sales for the fourth quarter of 2013 were $199.1 million as compared to $216.0 million for the comparable period in 2012. Shipments of home standby generators experienced strong growth over the prior-year quarter as we continue to expand our leading position for these products through our innovative approach to the market.

The strength in home standby generators, however, was more than offset by a meaningful decline in shipments of portable generators due to less severe power outage events in the fourth quarter of 2013 relative to prior year, which included Superstorm Sandy.

C&I product sales for the fourth quarter of 2013 increased 42.7% to $157.9 million from $110.6 million for the comparable period in 2012. The increase was driven by the acquisitions of Ottomotores, Tower Light and Baldor Generators along with strong organic growth for stationary and mobile generators.

The strength in organic revenues was primarily driven by a significant increase in shipments to national account customers and increased sales of natural gas generators used in light commercial and retail applications.

Gross profit margin for the fourth quarter of 2013 was 38.7% compared to 36.9% in the prior-year fourth quarter. Gross margin improved over the prior year due to the combination of an improved product mix and a reduction in product costs due to a moderation in commodity costs and continued execution of cost reduction initiatives. These margin improvements were partially offset by the mix impact from the Ottomotores and Baldor acquisitions.

Operating expenses for the fourth quarter of 2013 declined $3.9 million, or 6.7%, as compared to the fourth quarter of 2012. The expense reduction was driven primarily by warranty rate improvements resulting in a favorable adjustment to warranty reserves of $5.3 million during the current year quarter, as well as a decline in the amortization of intangibles. These reductions were partially offset by the addition of operating expenses associated with the acquisitions of Ottomotores, Tower Light and Baldor Generators.

Interest expense in the fourth quarter of 2013 declined to $12.0 million compared to $16.6 million in the same period last year. The decline was primarily the result of a reduction in interest rate from the current-year credit agreement refinancing completed in May 2013.

2014 Outlook

The Company is initiating guidance for 2014 with revenue expected to grow over a very strong 2013. For the full-year 2014, the Company currently expects net sales to increase in the mid-single digit range as compared to the prior year. This top-line guidance assumes no material changes in the current macroeconomic environment, no major power outage events during 2014, and no benefit from additional acquisitions.

Gross margins are expected to decline by approximately 100 basis points during 2014 as compared to the prior year primarily as a result of a higher mix of C&I product shipments, including the impact of the addition of Baldor Generators.

Operating expenses as a percentage of net sales, excluding amortization of intangibles, are expected to increase approximately 100 basis points as compared to 2013, primarily as a result of favorable adjustments to warranty reserves in 2013 that are not expected to repeat in 2014.

Adjusted EBITDA margins are expected to remain attractive in the mid-20% range, which is consistent with the average level seen during the past four years.

We expect free cash flow generation to remain strong in 2014 due to our superior margin profile, low-cost of debt, favorable tax attributes and our capital-efficient operating model.

“We believe our 2013 financial results are further proof that our strategy is working,” continued Mr. Jagdfeld. “Heading into 2014, our team remains focused on the substantial penetration opportunity that exists for residential and light commercial standby generators, as well as increasing our share of the C&I market through our recently expanded product offering and our continued focus on natural gas generators. 

In addition, we expect to benefit from being a more balanced and globally-focused company as we continue to execute on our diversification and international expansion strategies, both organically and through acquisitions.”

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.

Generac Reports Third Quarter 2013 Results

Strong organic revenue growth from commercial and industrial products and home standby generators drives continued growth in earnings

WAUKESHA, Wis. -- Oct. 24, 2013-- Generac Holdings Inc., a leading designer and manufacturer of generators and other engine powered products, today reported financial results for its third quarter ended September 30, 2013.

Third Quarter 2013 Highlights

Net sales increased year-over-year by 20.9% to $363.3 million as compared to $300.6 million in the third quarter of 2012.

Net income during the third quarter of 2013 was $47.1 million, or $0.67 per share, as compared to $25.5 million or $0.37 per share for the same period of 2012.

Adjusted net income, as defined in the accompanying reconciliation schedules, increased to $73.7 million from $54.1 million in the third quarter of 2012. Adjusted diluted net income per share was $1.06 as compared to $0.78 per share in the third quarter of 2012.

Adjusted EBITDA increased 31.2% to $100.1 million as compared to $76.3 million in the third quarter last year. Adjusted EBITDA margin during the third quarter improved to 27.5% as compared to 25.4% in the prior year primarily due to warranty rate improvements resulting in a favorable adjustment to warranty reserves.

Cash flow from operations in the third quarter of 2013 was $80.9 million as compared to $69.5 million in the prior year quarter. Free cash flow was $76.7 million as compared to $61.6 million in the third quarter of 2012.

For the trailing four quarters, including the third quarter of 2013, net sales were $1.452 billion; net income was $154.3 million; adjusted EBITDA was $382.1 million; cash flow from operations was $261.6 million; and free cash flow was $238.4 million.

On August 1, 2013, the Company closed on the previously announced acquisition of Tower Light Srl, a leading developer and supplier of mobile light towers throughout Europe, the Middle East and Africa.

Subsequent to the end of the quarter, the Company entered into a purchase agreement on October 7, 2013 to acquire substantially all of the assets of Baldor Electric Company’s generator division (“Baldor Generators”). Baldor Generators offers a complete line of generators ranging from 3kW to 2.5MW throughout North America.

“We experienced double-digit organic revenue growth again during the quarter as a result of increased spending from our national account customers and continued adoption of standby generators for both residential and commercial applications,” said Aaron Jagdfeld, President and Chief Executive Officer.

“We believe our expanded dealer base, targeted marketing efforts and continued roll-out of our PowerPlay® in-home sales process are having an impact on extending the awareness and distribution of standby generators, which is leading to a new and higher baseline level of demand for these products. In addition, over the last twelve months, we have announced several acquisitions that provide us with immediate access to new global markets and new products, helping to further grow and diversify our business.”

Additional Third Quarter 2013 Highlights

Residential product sales for the third quarter of 2013 increased to $192.7 million from $191.0 million for the comparable period in 2012. Shipments of home standby generators were higher sequentially and over the prior year due to a combination of factors including the additional awareness and adoption created by major power outages in recent years, the Company’s expanded distribution, increased sales and marketing initiatives, overall strong operational execution and a more favorable environment for residential investment.

The strength in home standby generators was partially offset by a decline in shipments of portable generators due to less severe power outage events in the current year quarter relative to prior year, although expanded placement for these products continued to lead to year-over-year market share gains. In addition, increased revenue from power washer products also contributed to the year-over-year sales growth in residential products.

Commercial and Industrial (CandI) product sales for the third quarter of 2013 increased 61.8% to $151.5 million from $93.6 million for the comparable period in 2012. Organic net sales increased at a strong double-digit rate during the current year quarter primarily driven by a significant increase in shipments to national account customers and increased sales of natural gas generators used in light commercial/retail applications. In addition, the Ottomotores acquisition, which closed in December 2012, and the Tower Light acquisition, which closed in August 2013, contributed to the year-over-year growth in CandI products.

Gross profit margin for the third quarter of 2013 was 38.4%, which was approximately flat as compared to the third quarter of 2012. Gross margin was affected by the mix impact from the addition of Ottomotores sales along with a higher mix of organic CandI product sales, mostly offset by the positive impact from a moderation in commodity costs and continued execution of cost-reduction initiatives.

Operating expenses for the third quarter of 2013 declined $4.5 million, or 8.0%, as compared to the third quarter of 2012. The expense reduction was driven primarily by warranty rate improvements resulting in a favorable adjustment to warranty reserves, as well as a decline in the amortization of intangibles. These reductions were partially offset by the addition of operating expenses associated with the Ottomotores and Tower Light businesses, and increased sales, engineering and administrative infrastructure to support the strategic growth initiatives and higher baseline sales levels of the Company.

Interest expense in the third quarter of 2013 declined to $12.5 million compared to $16.9 million in the same period last year. The decline was primarily the result of a reduction in interest rate from the current-year credit agreement refinancing completed in May 2013.

Outlook

The Company is revising upward its sales guidance for full-year 2013 primarily due to continued strong demand for home standby generators, as well as a modest impact from the expected closing of the Baldor Generators acquisition in the fourth quarter of 2013.

Full-year 2013 net sales are now expected to increase in the low-to-mid 20% range over the prior year, which is an increase from the low-20% rate previously expected. This top-line guidance continues to assume no material changes in the current macroeconomic environment and no major power outage events for the remainder of 2013.

Gross margins for full-year 2013 are now expected to increase approximately 50 basis points as compared to the prior year, which is an improvement from the previous expectation of approximately flat as compared to the prior year.

Operating expenses as a percentage of net sales, excluding amortization of intangibles, are now expected to decline by approximately 75 to 100 basis points as compared to 2012, which is an improvement from the previous expectation of approximately flat as compared to the prior year.

As a result of the higher sales outlook and the improved gross margin and operating expense guidance, adjusted EBITDA for the full-year 2013 is now expected to increase in the low-30% range, which is an increase from the low-20% range previously expected.

“We remain excited about the compelling secular penetration opportunities for our products,” continued Mr. Jagdfeld. “These organic growth drivers are highlighted by the substantial opportunity to increase the penetration of standby generators in both the residential and light commercial markets, the significant opportunity to provide backup power for critical communications infrastructure, along with the overall ongoing shift in the market toward natural gas generators. At the same time, we continue to remain active on the acquisition front in recent months with the closing of the Tower Light transaction and the agreement to purchase Baldor Generators. These acquisitions are an integral part of our Powering Ahead strategic plan to become a more balanced company with improved global scale.”

Generac Is the One to Watch Out For

July 15 -- Power outages are getting more common in US and Canada.

The energy crisis has taken over the whole world and its adverse effects are encompassing the residential and commercial sectors alike. According to the estimates of U.S. Department of Energy, power cuts cost businesses an average $80 billion loss per year. This has opened the gates for standby energy source providers in the market to take advantage of this opportunity. The use of standby power generators are growing more popular each day. Companies providing such machinery are expected to experience exponential growth on the basis of growing demand. The companies are expanding their operations outside the U.S. so that they can cater a larger market. One company working on this principle is Generac Holdings.  Let’s see if investors can trust the company’s growth expectations or not.

Generac’s business outlook

Generac is a manufacturer and marketer of generators and other engine-powered machinery for residential, commercial and industrial markets. The company has a huge market share in the residential sector holding a 70% share of the domestic home standby market in the US. It has a huge distribution network of over 4800 dealers which acts as a competitive advantage and a barrier to entry for the new players in the market. The company’s sales rocketed up to the $1 billion mark for the first time in 2012, which was a 48% growth in sales from 2011. Along with this, the company’s 3 year average income growth stands at a huge 29.4% compared to the industry average of just 3.5%. The cash flows of the company increased from $105 in 2010 to $213 million in 2012.

Though it is performing better than the industry, the company has a lower return on equity and return on assets compared to rival Cummins.  But it may not be too worrisome for Generac, as Cummins has gone down with its revenues last year and its performance might deteriorate more in coming future due to the strict regulations recently introduced by the government on diesel engines. Briggs and Stratton on the other hand is a large cap stable company with little or no growth expected in near future. Thus it is unable to excite you with its margins or returns.

The company’s main focus these days is the optional standby power supply for markets, restaurants, healthcare institutions and telecom companies. This is because of the huge losses these places incur when power is cut and there is no secondary power source.  Hospitals cannot risk the life of patients by not keeping power generators. They are bound to keep power generators for emergency purposes. Moreover, the company is also considering working on a line of generators that use natural gas as the power source. This decision might be fruitful as natural gas prices have declined and demand for such products would be high.

Competitive situation

As mentioned above some of its peers are Briggs and Stratton and Cummins. Cummins gives Generac a tough time in the residential market whereas Briggs is present as a dominant force in the commercial sector. Moreover Cummins is not just confined to power generation; it has a number of other operations. Currently its diesel engine business is in a funk as the government has conducted some serious changes in the regulations for diesel engine vehicles. Cummins is currently working on Natural gas engines to take advantage from the low natural gas prices in the country.

Briggs on the other hand also has two segments i.e. engines and products. Most of its sales and profits are attributed to the engines segment whereas its product line of generators and power washers have reported losses since the past 3 years. Both these other companies have their primary focus on engines, but Generac is focused on the production of power generators only. This gives the company an advantage over its peers to increase its market share of the power generators market. Furthermore, both Cummins and Briggs provide a decent yield to their investors which Generac does not, but Generac does give out hefty special dividends to its investors. In June 2012 the company paid a $6 per share dividend which is huge compared to what you have to pay for the company’s stock.

Recent acquisition

In the last quarter of 2012 the company made a strong move to enter international markets by acquiring Ottomotores. Through this acquisition, the company would take over the operations of Ottomotores Mexico and Ottomotores Brazil in Curitiba. This would enable Generac to combine both companies which are involved in the manufacturing and selling of diesel generators from 15 kW to 2.5 MW. Ottomotores is a leading company in Latin American standby power industry. This would help the company to strengthen its grasp on the Latin American market where its competitor Briggs & Stratton is already present.

Conclusion

Power generators are an essential component for both residential and commercial users alike. With the energy shortage in different countries increasing, the market for these power generators is growing. Growing companies like Generac can make full use of this opportunity due to its exceptional presence in the market over more than 50 years and its strong profitability and cash flows indicating that the company can take a few leaps of faith. Furthermore, its acquisition of Ottomotores will help it to focus on its sales outside the US market and take advantage of synergies.

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Generac Completes Amended/Restated Secured Facility

June 3 -- Generator maker Generac announced this morning it had completed the refinancing of its senior secured term loan credit facility and, as it previously promised, will use part of the proceeds to pay investors a special dividend of $5.00 per share, payable on June 21 to stockholders of record on June 12.

Generac said the refinancing resulted in it incurring $1.2 billion of senior secured term loans that replaced its prior term loan facilities. The new term loans will mature in 2020, with interest initially accruing at LIBOR plus 2.75% with a LIBOR floor of 0.75%. Moreover, beginning in the second quarter of 2014, the spread to LIBOR of the new term loans can be reduced to LIBOR plus 2.50% if its net debt leverage ratio falls below 3.0 times.

Generac also obtained a one-year extension to the maturity date of its existing $150 million senior-secured, asset-based revolving credit facility. The extended revolving credit facility will terminate in 2018, but will continue to accrue interest on drawn proceeds using an "availability-based pricing grid" starting at LIBOR plus 2%.

As previously announced, the generator maker intends to use approximately $342 million of the proceeds from the new term loans to fund a special cash dividend to its stockholders of $5.00 per share. The company does not pay a regular dividend on its common stock. The remaining funds will be used for general corporate purposes and to pay related financing fees and expenses.

As a result of the closing on the $1.2 billion of senior secured term loans, the Company is updating its guidance for interest expense for the full-year 2013. Interest expense is now expected to be in the range of $55.0 to $57.0 million, which includes $50.0 to $51.0 million of debt service costs, at current LIBOR rates, plus $5.0 to $6.0 million for deferred financing cost and original issue discount amortization. Interest expense during the third quarter of 2013, the first full quarter under the new capital structure, is expected to be approximately $13.0 million, which includes approximately $2.0 million of deferred financing costs and original issue discount amortization.

Generac Reports Record Fourth Quarter and Full-Year 2012 Results

GENERAC REPORTS RECORD FOURTH QUARTER AND FULL-YEAR 2012 RESULTS

Fourth quarter results significantly exceed expectations - Strong broad based organic revenue growth and operational execution lead to record levels of revenue, adjusted EBITDA and cash flow in the quarter

WAUKESHA, Wis.-- Feb. 14, 2013-- Generac Holdings Inc., a leading designer and manufacturer of generators and other engine powered products, today reported financial results for its fourth quarter and year ended December 31, 2012.  Additionally, the Company provided its current outlook for 2013.

Fourth Quarter 2012 Highlights

Net sales increased year-over-year by 28.0% to $342.0 million as compared to $267.3 million in the fourth quarter of 2011.

Residential product sales increased 28.9% compared to the fourth quarter of 2011.

Commercial & Industrial (C&I) product sales increased 29.4% compared to the prior year fourth quarter.

The Ottomotores acquisition closed on December 8, 2012, building a more balanced, globally focused business. The entire $44.8 million net purchase price was funded using cash on hand.

Net income during the fourth quarter of 2012 was $28.3 million, or $0.41 per diluted share.

Adjusted net income, as defined in the accompanying reconciliation schedules, increased 17.1% over the prior year quarter to $60.7 million. Adjusted diluted net income per common share increased 15.3% to $0.87 per share.

Adjusted EBITDA increased 34.5% over the prior year fourth quarter to $83.1 million.

Cash flow from operations in the fourth quarter of 2012 was $106.4 million as compared to $80.7 million in the prior year quarter. Free cash flow was $97.4 million as compared to $73.1 million in the fourth quarter of 2011.

As a result of this strong free cash flow conversion, on February 11, 2013, the Company prepaid $80.0 million of principal on its existing term loan, contributing to significantly improved leverage ratios since refinancing the Company’s credit facilities in the second quarter of 2012.

Full-Year 2012 Highlights

Net sales increased year-over-year by 48.5% to $1.176 billion as compared to $792.0 million in 2011.

Residential product sales during 2012 increased 43.7% as compared to a strong 2011, which grew at a 31.7% rate over 2010.

C&I product sales increased 64.0% as compared to 2011. Excluding the impact of Magnum Products and the modest impact from the recent Ottomotores acquisition, C&I product sales increased 14.0% versus 2011 on an organic basis.

Net income during 2012 was $93.2 million, or $1.35 per diluted share.

Adjusted net income increased 50.0% over the prior year to $220.8 million. Adjusted diluted net income per common share increased 47.0% to $3.19.

Adjusted EBITDA increased 53.8% over the prior year to $289.8 million.

Cash flow from operations during 2012 was $235.6 million as compared to $169.7 million in the prior year. Free cash flow was $213.2 million as compared to $157.7 million in 2011, which represents 97% and 107% of the adjusted net income reported during the respective years.

“2012 was a tremendous year for Generac as we achieved record financial results with significant growth across all product categories and regions of the United States,” said Aaron Jagdfeld, President and Chief Executive Officer.

“With 49% growth in 2012 following 34% growth in 2011, we have nearly doubled the size of our business in the past two years and have used our positive momentum to reinvest heavily in our future over that time using our Powering Ahead strategy as our roadmap. Specifically, in the fourth quarter, we launched our AMP™ marketing tool which combines data from existing owners, third party demographic data and power outage tracking to identify and direct market to potential sales prospects more effectively. This tool, coupled with our new PowerPlay™ tablet based in-home selling solution which also launched in the fourth quarter, should improve sales lead flow and closure rates for home standby opportunities through our distribution partners.

In 2012, we also accelerated our re-entry into the market for power washers and have recently launched our OneWash™ product, the industry’s first and only variable speed washer, which has helped us to gain valuable shelf space for the upcoming 2013 season.”

“In addition to investments in our core markets in the U.S., our efforts to become a more global player took a major step forward with the acquisition of the Ottomotores businesses late in the fourth quarter of 2012,” continued Mr. Jagdfeld. “With over 500 employees and locations in Mexico and Brazil, Ottomotores is a leading market share player in the growing Latin American standby power market.

This acquisition provides us with the essential elements of a local manufacturing presence, added distribution and access to higher-power products that we believe are critical for us to begin building a foundation to successfully compete in the global market for backup power generation.”

Additional Fourth Quarter 2012 Highlights

Residential product sales for the fourth quarter of 2012 increased 28.9% to $216.0 million from $167.5 million for the comparable period in 2011. The growth was primarily driven by increased demand for portable and home standby generators, and to a lesser extent power washers. The strength in shipments was driven by a combination of the significant awareness and demand created by major power outages in recent years, expanded distribution, and overall strong operational execution.

Commercial & Industrial product sales for the fourth quarter of 2012 increased 29.4% to $110.6 million from $85.5 million for the comparable period in 2011. The increase in net sales was primarily driven by an increase in shipments to national account customers for both stationary standby and mobile power equipment. C&I net sales in the fourth quarter of 2012 includes a modest contribution of revenue from the Ottomotores acquisition that closed in December 2012. The Magnum Products acquisition became fully annualized as of the fourth quarter of 2012, and accordingly, the full impact of its financial results are reflected in both the current and prior year quarterly periods.

Gross profit margin for the fourth quarter of 2012 was 36.9% compared to 36.8% in the fourth quarter of 2011. The positive impact from improved pricing and a moderation in commodity costs was largely offset by changes in product mix during the current year quarter.

Operating expenses for the fourth quarter of 2012 declined by $4.2 million or 6.8% as compared to the fourth quarter of 2011. Additional operating expenses to support the strategic growth initiatives and higher baseline sales levels of the Company were more than offset by a non-recurring, non-cash impairment charge that was recorded in the prior year totaling $9.4 million. Operating expenses during the current-year quarter were also modestly impacted by the acquisition of Ottomotores in December 2012.

Interest expense in the fourth quarter of 2012 increased to $16.6 million compared to $5.9 million in the same period last year. The increase was a result of the higher debt levels from the refinancing of the Company’s senior secured credit facilities in May 2012.

Net income in the current year quarter includes an income tax provision of $21.4 million as compared to a $238.0 million income tax benefit in the fourth quarter of 2011. The large income tax benefit in the prior-year fourth quarter consisted primarily of the reversal of the full valuation allowance on the Company’s net deferred tax assets.

2013 Outlook

The Company is initiating guidance for 2013 with solid revenue growth expected off a very strong 2012. For the full-year 2013, the Company currently expects net sales to increase approximately 10% 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 for the remainder of 2013.

Gross margins are expected to decline by approximately 80 to 100 basis points during 2013 as compared to the prior year primarily as a result of the addition of Ottomotores partially offset by the expected favorable impact from cost reduction initiatives.

Operating expenses as a percentage of net sales, excluding amortization of intangibles, are expected to be slightly up compared to 2012, as the Company continues to invest in its infrastructure to support strategic growth initiatives and an overall higher level of baseline sales.

As a result, Adjusted EBITDA for the full-year 2013 is expected to increase in the mid single-digit percentage range as compared to 2012.

Cash flow conversion is expected to remain strong during 2013 and be consistent with the cumulative average during the past four years of free cash flow representing between 90-95% of adjusted net income.

Mr. Jagdfeld concluded, “Over the course of the past two years, we have significantly increased our product development efforts by doubling the size of the Company’s engineering functions and investing heavily in our capabilities. We expect to bring more new products to market in 2013 than at any other time in the history of Generac which we believe will both add to our leadership positions in the markets for portable and home standby generators and significantly broaden our commercial and industrial product lines.

As we focus on driving the adoption of back-up power generation for homes and businesses and diversifying our product offerings, our distribution channels and the geographies we serve, we are transforming Generac into a larger, more balanced company with improved global focus. Through innovation and solid execution in 2013, we expect to accelerate the penetration rate for home standby generators, increase our share of the commercial and industrial markets, and further diversify our business through new products and geographies. As a recognized leader in the market for back-up power, we believe Generac is incredibly well positioned to capitalize on the macro opportunities that are in front of us.”

About Generac

Since 1959, Generac has been a leading designer and manufacturer of a wide range of generators 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 internationally through a broad network of independent dealers, retailers, wholesalers and equipment rental companies.GR

Made In America: Generators

January 9 -- When the lights go out, most businesses idle their production until the electricity is restored by the power company.  However, a periodic disruption in utility service is exactly the time when the power generation industry’s products spring into service.

Generators provide backup power to homes and businesses, generally delivering between 800 watts and 9 megawatts of power through diesel, propane, natural gas, or bio-fuel sources. The industry has attracted notable attention in recent years as increasingly frequent storms make generators an important infrastructure asset for a wide range of businesses.  Best of all, many of the leading products are made right here in America.

The #1 manufacturer of home generators is Wisconsin-based Generac.  Founded in 1959, the company makes a variety of standby and portable generators through four manufacturing plants located in Wisconsin and Georgia.

While its products have historically been powered by diesel and propane fuels, Generac has been developing products that utilize cleaner-burning natural gas or bio-fuel in order to comply with government emissions rules.  In addition, the company has been diversifying into related markets through the acquisition channel, including the 2011 purchase of Magnum Products, a leading provider of light towers and mobile generators.

In its latest fiscal year, Generac reported revenues and adjusted EBITDA of $792.0 million and $188.5 million, increases of 33.6% and 20.6%, respectively, versus the prior year.  The company's strong sales were aided by a greater level of purchases by U.S. customers who were affected by recent storm activity, as well as its limited exposure to weakening international economies.

While operating margins slipped compared to the prior year level, the major cause of the decline was a shift to lower priced portable generators, rather than inefficiencies in its operations.  Gross margins have also been affected somewhat by rising commodity prices, but the company has been able to hedge their significant raw material needs and has found domestic sources for over half of its products’ components.

In FY2012, Generac has continued to generate solid results, with increases in revenues and adjusted EBITDA of 59.0% and 102.0%, respectively, compared to the prior year period.  All of the company’s segments have enjoyed double digits gains in sales, led by the commercial unit’s 81.9% increase.

While healthcare organizations have long recognized the need for generators, a wider range of businesses are adding power-related products to their mission-critical infrastructure.  Generac’s profits have also benefited from more favorable commodity prices, due to slower economic growth in emerging markets.  The higher profitability has led to strong operating cash flows, with $129.2 million generated in the first nine months of the year, which has allowed the company to return money to shareholders.

Generac estimates that only 2.5% of U.S. residential homes have emergency generators, which represents a significant growth opportunity for the company.  Given the company’s narrow focus on the generator market, though, where can investors find industry investments with greater product diversity?  One avenue would be to look at the manufacturers of engines for power generation products.  Two of the leading companies in this area are Briggs & Stratton and Cummins.

Founded in 1908, Briggs & Stratton is the largest producer of air-cooled gas engines for outdoor power equipment, with leading positions in the portable generator and power washing product lines.  While the company continues to derive the majority of its business from engine sales, it moved into the generator business through the acquisition of Generac’s portable generator unit in 2000.

Like Generac, Briggs & Stratton manufactures products in U.S. based facilities, although it has moved some production overseas.  In its latest fiscal year, the company reported declines in revenues and operating income of 2.1% and 14.5%, respectively, compared to the prior year period.  While sales of power generation products rose during the period, engine sales declined 13% due to Briggs & Stratton’s significant exposure to contracting European markets.  Despite weak current profit margins, Briggs & Stratton's restructuring activities should provide solid operating leverage for an eventual rebound in international economies.

Founded in 1919, Cummins is a global manufacturer of commercial engines and related components, as well a developer of power generation products and systems.  The company has built a $13 billion business around the sale of diesel and natural gas engines, which generates over 60% of total sales, and Cummins has been a beneficiary of rising demand for construction equipment in the fast-growing economies of China, Brazil, and India.

In FY2012, though, the company has been affected by the same global financial pressures and negative factors that have hurt Briggs & Stratton.  In the first six month of the year, Cummins reported declines in revenues and operating profit of 0.6% and 7.6%, respectively, versus the prior year period.  

Robert Hanley      www.beta.fool.com

Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.