A Sales Surge for Generator Makers

WHITEWATER, Wis.—November 6 -- In the days before Superstorm Sandy slammed into the East Coast, Generac Holdings Inc. Chief Executive Aaron Jagdfeld accelerated the company's distribution operations, emptying the company's warehouse of generators for big-box retailers and the company's dealers.

At the same time, Generac opened the throttle on the company's production of consumer-level generators to replenish the truckloads of generators streaming away from the company's distribution center.

"This is the first time since we became a public company [in 2010] that we experienced something of this magnitude," said Mr. Jagdfeld in an interview.

Generac's main competitors in the emergency-generator market, Kohler Co. and Milwaukee-based Briggs and Stratton Corp., BGG +2.09% experienced a similar surge in storm-related demand.

"We have absolutely ramped up to meet the demand in the short-term and the demand we anticipate in the future," said Todd Teske, chief executive of Briggs and Stratton.

Immediately before and after Sandy's onslaught, manufacturers concentrated on supplying portable gasoline-powered generators. But in the storm's aftermath, Generac, Briggs and Stratton and Kohler, based in Kohler, Wis., are emphasizing permanent residential generators, which are wired directly to an electrical system and activate automatically when there is a loss of power. It is a market the companies are counting on to generate significant growth. Manufacturers believe that prolonged power outages following Sandy will transform homeowners' view on permanent generators to a necessity rather than a luxury item.

"It's basically people saying: 'I never want this [power outage] to happen again.' The awareness of it really changes behaviors," said Melanie Tydrich, Kohler's senior channel manager of residential generators.

Generac alone accounts for 70% of the permanent-residential-generator market. With Kohler and Briggs and Stratton, the three companies combined account for 90% of the U.S. market.

"There's a unique opportunity to really turn this into a big market," said Mr. Jagdfeld of Generac, whose shares jumped more than 20% when U.S. stock markets reopened Oct. 31. "We've got to be thinking bigger," he added.

Before the storm, Generac, based in Waukesha, Wis., was only using about two thirds of its production capacity. Mr. Jagdfeld expects production lines to be running full steam over the coming weeks.

The company expects to hire at least 100 more temporary and permanent workers over the next 60 days to boost production, lifting its workforce by about 5% to 2,300 people.

To relieve the expected stress on its existing assembly lines, Mr. Jagdfeld said the company will begin using 250,000 square feet of factory space in Wisconsin acquired this summer. It also began building its own alternators in Wisconsin last year after relying on a contract manufacturer in China for several years.

"We're controlling more of the critical components of our generators, which helps us react very quickly to an increase in demand," said Tim Hearden, Generac's vice president of operations.

Unlike portable generators that transmit electricity to lights and appliances through plug-in extension cords, a permanent standby generator is wired directly to a home's electrical system. The generator consists of two main components: an engine and an alternator. The engine causes the alternator to rotate, creating electricity.

The engines draw fuel from a home's natural-gas line or a liquid propane tank, allowing the generators to operate uninterrupted for days. The cost of a generator depends on its power output, but most residential generators average $5,000 to $8,000, including installation.

Just 1.25 million U.S. households have permanent generators, or 2.5% of the 50 million homes that Generac estimates as the potential size of the permanent-residential-generator market.

Adding one percentage point to the penetration rate of permanent generation would represent 500,000 additional homes. Industry analysts say this growth is achievable, given that the market size was below 2% five years ago. Industry sales of home generators have been growing about 17% a year.

Moreover, each point of market growth creates an opportunity for about $2 billion of new revenue. With Generac's 70% share of the permanent-standby-generator market, the company would be in line to capture about $1.4 billion from each percentage point of industry growth. That is nearly 2.5 times greater than analysts' revenue forecast for Generac's permanent-residential-generator business this year.

For homeowners still without power though, buying a permanent standby generator won't bring immediate relief. An electrical contractor is needed to install the backyard units, which typically require multiple permits to comply with municipal building codes.

Joann Davi, vice president of Long Island Emergency Power, a Generac dealer and installer in Deer Park, N.Y., predicts her company will have steady work for the next two years based on the orders and the hundreds of inquiries about permanent residential generators she received in the past two weeks.

"They're becoming more common because on Long Island we're surrounded by water and overhead power lines," she said.

 professional.wsj.com

Kohler Says Sheboygan Plant is 'Not Sustainable' Without Cost Cuts

Oct. 5, 2010 -- Kohler Co. said Tuesday that its Sheboygan County manufacturing operations "are not sustainable long term" under their current cost structure.

But a spokesman said later that the firm, which is seeking major concessions from its union workers, isn't threatening to relocate.

"We are trying to avoid getting to that point by seeking solutions during these negotiations," Kohler spokesman Todd Weber said by e-mail.

Earlier Tuesday, Kohler issued a four-page statement - unusual for the privately held firm in its length and detail - laying out its position in what have become high-stakes talks with the United Auto Workers on a new labor contract.

Calling the costs to run its Sheboygan County factories "significantly higher than any of our other plants," Kohler summarized its proposals for extensive use of casual employees, a two-tier wage scale that would pay new workers less and a five-year pay freeze for current union-represented employees.

"Kohler Co. will try to maintain a long-term presence in Sheboygan County," Weber said in the statement, "but we need to get our future wage and benefits more in line with competitors in the market to protect what we have in Sheboygan County and be viable long term."

At issue are the company's factories in the village of Kohler, where it makes plumbing products and engines, and just north of Sheboygan, where it makes generators. There are 1,937 UAW-represented employees now working at those plants, with another 550 on layoff, the company said.

Kohler said union-represented workers average $22.54 an hour, a rate the firm said is the highest among its 15 U.S. factories "by a substantial margin."

The company said the lower pay new employees would receive would be above the local average for manufacturing - currently $14.70, according to Kohler. The union has said the company wants the lower-tier employees to get about 35% below the current pay for regular workers, which would suggest a rate of about $14.65 an hour.

Kohler is seeking to use casual employees - or in the company's language, a flexible workforce - for up to 25% of the annual hours worked by bargaining-unit members. Casual workers would be paid the lower-tier rate, and get reduced benefits, until they worked 1,000 hours over 12 months. They also would be union-represented, Kohler said. The Journal Sentinel, quoting a union official, incorrectly reported previously that the workers would not be union-represented.

The company also wants to reduce benefit expenses that it says are "compounding the uncompetitive cost structure." The firm said it is looking to increase union-employee contributions for health care benefits to 20% of the cost.

Kohler's call for widespread use of casual employees and lower pay for new workers mirrors the strategy employed last year by Mercury Marine in Fond du Lac and just recently by Harley-Davidson Inc. in Milwaukee and Tomahawk. Both companies successfully wrested from their unions the concessions Kohler now seeks - and won public financial aid as well - all under threat of moving production out of Wisconsin.

Asked if Kohler is pursuing state aid, Weber said, "At this time, Kohler Co. is not talking to the State of Wisconsin regarding assistance."