Generac Reports Third Quarter 2014 Results

WAUKESHA, Wis.-- Nov. 6, 2014-- Generac Holdings Inc., a leading designer and manufacturer of power generation equipment and other engine powered products, today reported financial results for its third quarter ended September 30, 2014.

Third quarter 2014 Highlights

• Net sales were $352.3 million during the third quarter of 2014 as compared to $363.3 million in the prior-year third quarter.
• Residential product sales were $183.7 million during the third quarter as compared to $192.7 million in the prior-year quarter, primarily due to a decline in portable generator sales and, to a lesser extent, shipments of home standby generators.
• Commercial and Industrial (CandI) product sales were $146.4 million during the third quarter as compared to $151.5 million in the prior-year quarter. Contributions from recent acquisitions and strength in oil and gas markets were more than offset by a decline in shipments to telecom national account customers.
• Net income during the third quarter of 2014 was $36.5 million, or $0.52 per share, as compared to $47.1 million, or $0.67 per share, for the same period of 2013. Adjusted net income, as defined in the accompanying reconciliation schedules, was $57.9 million, or $0.83 per share, as compared to $73.7 million, or $1.06 per share, in the third quarter of 2013.
• Adjusted EBITDA, as defined in the accompanying reconciliation schedules, was $83.1 million as compared to $100.1 million in the third quarter last year.
• Cash flow from operations in the third quarter of 2014 was $57.2 million as compared to $80.9 million in the prior year quarter. Free cash flow, as defined in the accompanying reconciliation schedules, was $47.8 million as compared to $76.7 million in the third quarter of 2013.
• For the trailing four quarters, including the third quarter of 2014, net sales were $1.433 billion; net income was $173.7 million; adjusted EBITDA was $348.7 million; cash flow from operations was $247.2 million; and free cash flow was $208.0 million.
• On September 1, 2014, the Company acquired Pramac America, LLC, resulting in the ownership of the Powermate trade name and the right to license the DeWalt brand name for certain residential engine powered tools. The transaction also included working capital associated with these products. This acquisition helps to expand the Generac brand portfolio across its residential product platform and increases its product offering in the portable generator category.
• As previously announced, on October 1, 2014, the Company acquired MAC, Inc. and its related entities (“MAC”), a leading manufacturer of premium-grade commercial and industrial mobile heaters within the U.S. and Canada. The acquisition expands the Company’s portfolio of mobile power products and provides increased access to the oil and gas market.

“Home standby generator sales improved at a solid rate as compared to the second quarter of 2014, as we continue to build awareness and expand our leadership position for this product category. Despite current market conditions where power outage severity has been well below normal, we believe the penetration opportunity that exists for home standby generators remains significant,” said Aaron Jagdfeld, President and Chief Executive Officer.

“Our CandI product sales continued to experience good momentum within the oil and gas market, while capital spending with certain telecom customers was lower in the quarter resulting in reduced shipments to this end market. On the acquisition front, we have been active in recent months by closing two transactions which broaden our residential engine powered tool product line and expand our CandI mobile products platform, while also increasing our exposure to the oil and gas market.

We remain focused on our “Powering Ahead” strategic plan by proactively executing on a number of growth initiatives to drive a new and higher baseline of demand for our products.”

Additional Third quarter 2014 Highlights

Residential product sales for the third quarter of 2014 improved on a sequential basis to $183.7 million from $179.6 million in the second quarter of 2014, driven by a solid increase in shipments of home standby generators partially offset by a normal seasonal decline in power washer sales.

Residential product sales declined on a year-over-year basis from $192.7 million for the third quarter of 2013 as the prior year was still benefiting from the afterglow period of demand from Superstorm Sandy. Also, the third quarter of 2014 continued to experience a power outage severity environment that remained below normalized levels. These factors resulted in a year-over-year decline in portable generator sales and, to a lesser extent, shipments of home standby generators.

CandI product sales for the third quarter of 2014 were $146.4 million as compared to $151.5 million for the comparable period in 2013. Shipments to telecom national account customers declined in the current year quarter as compared to the prior year primarily resulting from reduced capital spending by certain customers. This decline was partially offset by contributions from recent acquisitions and strength in oil and gas markets.

Gross profit margin for the third quarter of 2014 was 37.0% compared to 38.4% in the prior-year third quarter. The decline was primarily driven by an increase in promotional activities during the current year quarter along with the mix impact from recent acquisitions. These declines were partially offset by a higher mix of home standby generators and lower mix of organic CandI product shipments.

Operating expenses for the third quarter of 2014 increased $7.3 million, or 14.0%, as compared to the third quarter of 2013. The increase was driven by a $5.6 million favorable adjustment to warranty reserves in the third quarter of 2013 that did not repeat in the current year, along with increased marketing and advertising expenses and the addition of operating expenses associated with recent acquisitions.

Interest expense in the third quarter of 2014 was $12.3 million, which was largely flat as compared to $12.5 million in the prior year. During the third quarter of 2014, a voluntary $50 million pre-payment of term loan debt was made which resulted in the recording of a $1.8 million loss on extinguishment of debt.

2014 Outlook

The Company is revising its prior guidance for revenue growth and adjusted EBITDA margins for full year 2014 resulting from a power outage environment that remains well below normalized levels, a reduced level of capital spending with certain telecom customers and the continued overall economic softness in Latin America.

For the full-year 2014, the Company now expects net sales to decline in the mid-single digit range over the prior year, and adjusted EBITDA margins are now expected to be in the low-to-mid 20% range. Free cash flow is expected to remain strong for the full year 2014 as a result of this strong margin profile, together with a low cost of debt, favorable tax attributes and capital-efficient operating model.

“Although current market conditions were below our expectations in the third quarter of 2014, we believe the numerous long-term growth opportunities that impact our business remain in place,” continued Mr. Jagdfeld. “With our strong balance sheet and free cash flow generation profile, we are confident in our ability to continue to invest in the future growth of the business, both organically and through acquisitions. In doing this, we expect to drive further penetration of standby generators as well as benefit from being a more balanced and globally-focused 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, oil and gas, 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.

Kohler Company Names New Group President

Tom Cromwell, President of Kohler Engines since 2009, has assumed responsibility for Kohler Co.’s worldwide power operations, reporting directly to David Kohler, President and Chief Operating Officer.

As the new Group President – Power, Cromwell will provide strategic and operational leadership for the Group’s engines and power systems businesses worldwide. He will be responsible for driving the growth and profitability of the Power Group businesses, consisting of Kohler Power Systems, SDMO Power Systems, UPSL, Kohler Engines and Lombardini.

Cromwell joined Kohler after a successful career at Modine Manufacturing Co., in Racine, WI. During his 18 years there, he served as Regional Vice President – Americas and also held a series of general management positions in Modine’s commercial products division, electronics cooling division, and heavy duty division. His experience included a three-year assignment overseas in Stuttgart, Germany, for Modine’s European automotive and heavy-duty equipment divisions.

Cromwell earned his bachelor’s degree in industrial technology management from the University of Wisconsin – Platteville and his executive MBA from the University of Wisconsin – Milwaukee.

www.forconstructionpros.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.

Kohler Expansion Positions Company for Greater Success

Recently, Benjamin Noel followed a semi hauling a Kohler Power Systems generator. Warning flags fluttered from its sides, yellow lights flashing caution. The generator was one of the largest Kohler Power Systems builds, and Noel, a Kohler associate with 37 years of employment under his belt, had built the housing for the unit.

“Knowing I was a part of building that?” he asked above the factory noise. “That’s pretty neat.”

Noel stood in the south end of the recently completed 105,000-square-foot addition to the generator manufacturing plant in the Town of Mosel, north of Sheboygan. Here, associates work three shifts, making everything from marine generators to 3.25-megawatt behemoths that power entire airports and military bases.

Although many of the residential generators are built using mass production procedures, larger units are often built to customer specifications. And while it’s appropriate to stock inventory for mass-produced items, the nature of the specialized units required an updated, responsive inventory system used throughout the factory.

John Brickner, director of manufacturing, said this system “is about having the right part in the right place at the right time.”

Approximately three days’ inventory is in the factory at any given time, with cutting and bending of steel taking place the first day, painting on day two, and building taking place the following day.

“We turned this into a job shop,” Brickner said. “We focus on on-time delivery and trying to get things out as quickly as possible.”

Helping that along is one of the plant’s newest acquisitions, an Amada fiber laser, which cuts some of the 25 to 30 million pounds of steel that passes through the generator plant each year.

“The precision on this is amazing,” Brickner said, watching the machine work. “It can cut up to 140 inches per minute, and cuts up to five times faster than a regular laser.”

Previously, Brickner explained that when it came time in the manufacturing process to enclose the generators, KPS sourced outside vendors. That step added time and increased costs. The new addition provides space for the company to manufacture its own enclosures, allowing KPS to offer “an entire solution to our customers,” Brickner said.

The philosophy of a “one-stop shop” means that KPS manufactures much of the generators’ internal components – transfer switches, wiring harnesses, circuit boards and switch gears – which provides competitive advantages like quality control, decreased lead time, and cost savings.

“Our controllers are designed specifically for power generation,” Brickner said. “It’s a lot more interactive, with a focus on application.”

Brickner said the longest build cycle, from planning to shipment, is 12 weeks; most units are shipped in less time, and each unit stays on the shop floor being built for four or fewer days. All generators are run through the testing bay prior to shipment, an area that also allows customers to test generators and request adjustments as necessary.

A two-coat painting system, installed in 2010, creates what Brickner called “a robust coating system” to protect generators from salty or harsh environments, like those found in hurricane- and storm-ravaged sections of the country.

When Hurricane Sandy struck in 2012, many East Coast businesses went long stretches without electricity — KPS generators supplied power so grocery stores could keep food properly preserved, and gasoline pumps could provide much-needed fuel for customers.

Brickner said the demand for electrical power in the United States is growing “faster than population growth, construction growth and GDP growth.”

That situation, coupled with the country’s “antiquated and under-invested-in electrical grids creates a need for quality power,” Brickner said. “If the grid for the United States becomes overtaxed, we’ll have an increased need for reliable power distribution at the customers’ point of use.”

Generators certainly find their way around the world, but local companies also benefit. Brickner tapped a smaller generator, its injection-molded enclosure made by Bemis Manufacturing in Sheboygan Falls.

“We source a lot of parts locally, whether it’s packaging or plastics,” he said. “It supports the whole vitality of this area.”

http://www.sheboyganpress.com/          Deanne Schultz

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

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 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.”