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 CEO Aaron Jagdfeld Generates a Champion

Jagdfeld's Keys

•       Has overseen Generac's 400% stock romp.

•       Overcame: The recession of 2008-09.

•       Lesson: Act decisively.

•       "Certain situations call for a healthy sense of urgency. If the situation is important enough, you have to be able to drive people forward at a fast pace."

August 27 -- Aaron Jagdfeld provides plenty of energy with his management style.

Good thing.

Running on his spark, Generac Power Systems overcame the power outage of the recession.

The timing for Jagdfeld was a drag as he started his stint as CEO.

Generac was North America's No. 1 maker of home standby generators, but it was September 2008.

The economy was tanking on the heels of the housing slump that began in 2007 — causing Generac to lose steam.

That was Jagdfeld's cue to rev up the business. Fast.

"I'm a very detail-oriented person and come from the angle of having to know all the details to help me make decisions" Jagdfeld, 41, told IBD. "I take the information and assimilate it quickly into making a decision."

Using that approach, he made the bold decision to re-enter the portable generator market in 2008.

Here's how they work:

Generac's standby generators operate on natural gas or liquid propane and are permanently installed with an automatic transfer switch, which Generac also manufactures.

Its portable generators are fueled by gasoline. They serve as an emergency home backup and are also used for construction and recreational purposes.

That 2008 move came a decade after Generac sold its portable business to Beacon Group.

A non-compete clause with Beacon expired a year before Jagdfeld became CEO — and he seized the chance to move back into the market.

"We needed to be there quickly because the rest of our markets were softening," said Jagdfeld.

By 2012, Generac had reclaimed its spot as North America's No. 1 maker of portable generators, a category it created when it was founded in 1959. Generac is also the leading maker of home and commercial standby generators.

Thanks to Jagdfeld's fast-paced style, Generac emerged from the downturn with vigor.

Business has surged since its February 2010 IPO. In 2012, sales climbed 48.5% to $1.176 billion. Profit leapt 47% to $3.19 a share. That followed a 33.6% rise in profit and 34% pop in sales in 2011.

Its share price has soared along with it, rising 400% since that first day of trading in February 2010.

"That decision to re-enter the portable generator business and speed of action in 2008 were absolutely critical to us staving off any major negative outcomes as a result of the rest of our company's business turning down during that period," said Jagdfeld, who's been with the company since 1994.

Complementing his speed, Jagdfeld weighed that decision to jump back into portable generators carefully, then re-entered the field with a clear understanding of its needs.

The CEO knew that Generac had a long history of making portable generators. And he had a strong knowledge of that product.

Portable generators can be stored and pulled out of storage when necessary. They typically run on gasoline and have outlets on the outside where owners can plug in extension cords and run them to the appliances they want to back up. The generators have to be operated manually during a power outage.

A standby generator is permanently installed and connected to the home's electrical service. When the power goes out, it detects the outage, starts up automatically and delivers power through the home's electrical system. These units typically run on natural gas or liquefied petroleum, so they have long running times and don't typically require refueling.

Jagdfeld knew his firm had heavy resources in engineering, operations, sales and marketing as he entered the portable generator market. Meanwhile, he developed one of the broadest offerings in the industry. And using Generac's long retail relationships, he quickly got its generators into stores.

With a stronger balance sheet after its initial public offering, Generac was able to invest in the inventory to meet heavy demand. That came in handy as buyers bulked up on generators during the massive power outages of Hurricanes Irene in 2011 and Sandy in 2012.

Jagdfeld has been high up the Generac food chain since 2002, when he became chief financial officer. In 2007 he rose to president, a job he maintains along with CEO.

Jagdfeld was instrumental in managing the sale of Generac to CCMP Capital Advisors in a leveraged buyout in 2006. And he led the company's transition to a public company with its 2010 IPO.

"He's had an excellent transition from a private-company CEO to a public-company CEO, which is a major transition,"said KeyBanc Capital Markets analyst Jeffrey Hammond. "The company went public in February 2010 at $13 per share and is now trading in the low $40s, and you have had two special dividends totaling $11 a share — $6 in June 2012 and $5 in June 2013. So the total shareholder return to date has made for a pretty compelling story."

Meanwhile, Jagdfeld planned to keep Generac No. 1 in the home standby generator category. He's done exactly that as chief executive, but it hasn't been easy.

Soon before he took over the firm's top post, rivals started knocking on the space more aggressively. Generac was "probably vulnerable" to this renewed push because his firm's product line hadn't been updated in years, he noted.

So Jagdfeld made his own push, ordering a redeveloping of Generac's products to create "the line of the future." The company changed the look of its products on its website. It added tech features to ensure the generator could be installed closer to the home, to adhere to national fire codes.

Jagdfeld also structured a sales team to better serve retailers.

"We made a big bet and spent millions of dollars to create a sales force," he said. "We put about 25 people into field at the time. That helped strengthen our relationships with distributors and helped fend off the competitive threat."

Thanks to those moves, Generac still holds the top slot among generator sellers with a 70% share.

Russ Minick, executive vice president of Generac's residential products, lauds his boss' management: "I have worked a few places and see Aaron as having a high-energy, high-pace style. We stretch and get a lot done compared to a lot of companies because of the pace he sets."

Jagdfeld admits 2010 probably wasn't the best environment for an IPO. The stock market wasn't making it easy for new issues.

But that didn't stop the man in his tracks. After all, his German name means hunting field. "We looked at it as though the company had a lot of long-term potential, but needed to fix the capital structure permanently," he said. "We saw an IPO as a way to pay down more debt and get the balance sheet in a better place. That's why we priced at the bottom of the range. We believed in the long-term opportunity."

The CEO and his team got that message across — and the IPO was on its way upward.

So was Jagdfeld, who uses his energetic communication to spark employees. "I can get people pretty excited about things by talking about the good things about the company," he said.

Generac, headquartered in Waukesha, Wis., produces inverter generators, commercial backup generators, industrial backup power systems and power washers. They're made across four facilities in southeastern Wisconsin. Instead of dealerships or stores of its own, Generac sells its machines in national home and hardware stores.

Jagdfeld, a native of Milwaukee, holds a bachelor's degree in business administration from the University of Wisconsin. He joined the audit practice at Deloitte & Touche and discovered Generac, which was a client. He saw its growth potential right away.

In 1994, after he had been with Deloitte a year, he got a call from Generac's chief financial officer to join the team. He leapt and got on board the firm's finance department that May.

Jagdfeld was drawn to Generac because of its generator. "I liked to take things apart as a kid to see how they worked," he said. "I like to understand the details about the mechanical nature of products."

Generac's manufacturing environment and the process of making its machines especially piqued his curiosity. Now he's generating even more interest as CEO.

Marilyn Much, Investor’s Business Daily             www.news.investors.com          

Generac May be a Little Short on Power Here

January 2 -- I love modestly-sized niche industrial companies, but I tend to like them a lot better when they're not especially popular or well known yet. That's the problem with Generac (GNRC) - although I really like Generac's power generator business (and the prospects for taking it global), there is ample analyst coverage today and the valuation is not all that compelling.

Generac has built itself into a billion dollar-plus business by manufacturing a broad range of standby and portable electric power generators. Generac's systems range from 0.8kW to 9MW and cover the waterfront from small portable generators to fixed residential standby units to larger industrial generators.

Unlike competitors like Briggs & Stratton (BGG), Kohler, Cummins (CMI), and Caterpillar (CAT), Generac is solely focused on generators, and that focus shows. The company has the broadest array of products available to the market, many of which offer meaningful performance/cost advantages (like lower cost of ownership and higher reliability). Generac also uses a lean manufacturing process that includes outsourcing, and the company has reaped good margins and returns as a result.

Generac has also differentiated itself with the fuel sources - while it's commonplace for residential standby generators to run on natural gas or LP, industrial generators have historically used diesel. By offering natural gas and LP options (as well as diesel and bi-fuel), Generac has created genset options with lower cost of ownership and operation, but without sacrificing performance.

While Generac is certainly working on building its commercial and industrial (C&I) business (more on this later), the residential business generates more than 60% of revenue at present. The real question is just how big Generac's addressable market could get.

Generac believes it has about 70% of the residential standby market, with Briggs & Stratton and Kohler claiming about 10% each and Cummins holding 5%. Unfortunately, the residential standby market is only about 2.5% penetrated today (with another 12% or so of homeowners owning a portable system). With each 1% of residential standby market penetration worth about $2 billion in addressable market size, it's well worth asking if this market can grow.

The biggest obstacle to growth is that the purchase of a standby system is at the very least a highly discretionary purchase, if not a luxury item. Generac (and others in the market) have made great strides in lowering the cost (down about 50% over the last 14 years), and the company has worked with builders to increasingly design standby units into the basic design of new homes. Accordingly, it's not unreasonable to think that the growth of this market is tied at least in part to the growth in residential housing (particularly on the higher end where an incremental $2,000 to $5,000 may not be problematic).

Perception of need is another issue, but the U.S. utility infrastructure is taking care of that one for Generac. While major weather events like Hurricane Sandy and 2012's "super derecho" certainly bring more attention to the need for and advantages of standby power supplies, the ongoing erosion of the power system is arguably a bigger factor. There were over 60 power outages affecting more than 50,000 people in 2010, versus just five such outages in 1993. Given that it seems unlikely that the U.S. government is going to find enough spare change in the couch cushions to fund a major transmission/distribution system improvement initiative, more and more homeowners may turn to fixed standby systems as a means of guaranteeing that their power stays on all the time.

When it comes time to buy, Generac is usually well-positioned. Not only does Generac have over 4,000 dealers across the country, but its products figure prominently at Home Depot (HD) and Lowe's (LOW), even with Briggs & Stratton selling systems under the General Electric (GE) brand name.

Though clearly smaller than the residential business, I wouldn't sleep on Generac's C&I business, as the company has ramped up its investments into these operations. Right now, Generac has about 15% share in the C&I market, with much of that concentrated in the standby market. That leaves them well behind the likes of Caterpillar (which has about 30%) share, Cummins (25%), Kohler (20%), and Germany's Tognum.

Generac has done relatively well in places where you'd expect solid interest in standby power - healthcare facilities, educational facilities, telecom installations and so on. Part of the question now is how successfully the company can expand its addressable market. Given the cost of spoilage, businesses like supermarkets, convenience stores, and restaurants are all likely candidates, but I suspect there's a larger market in customer service-sensitive applications. Consider that in the recent Hurricane Sandy it would seem that more Verizon (VZ) towers stayed operational compared with AT&T (T), as Verizon made greater use of mobile gensets.

Generac is also looking to compete more directly in markets like construction, where rivals like Caterpillar and Cummins have been pretty successful. In acquiring Magnum, Generac bought a business that has about 10% share in mobile trailer-mounted generators, as well as 35% share in the light towers that construction crews use to light up work areas at night.

Perhaps just as important are the overseas growth opportunities. Caterpillar, Cummins, and Tognum are global genset businesses, but Generac really hasn't been up until recently. The company is moving to change that, though, with a recent distribution arrangement for Australia and the acquisition of Ottomotores from TT Electronics. Ottomotores has solid C&I market positions in Mexico and Brazil, and I believe entry into Australia could be a launching pad into markets like Indonesia and India - markets where power reliability is a major issue even in large cities.

Will Risks Zap Investors?

Like any company, Generac has multiple operating risks for investors to consider. While Generac has benefited from its focused approach to the generator market, the company has begun to spread its wings a bit, re-entering markets like pressure washers. At the same time, there's always the risk that competitors will check any moves the company makes to gain share in the C&I market and/or look to grab some of that sizable share in the residential standby market.

Investors should also note that private equity group CCMP Capital Advisors owns more than half of the shares and three of the seven board seats. While the company recently announced (and then canceled) a secondary offering that would have seen about one-third of that stake go into the float, investors need to realize the potential for conflicts of interest here.

Likewise, I can't say I'm ecstatic about the company's decision earlier in 2012 to recapitalize and pay a $6 per share special dividend. The recapitalization added about $400 million in net debt, and I believe the capital could have been better used to grow the business.

Last and maybe least, there's a small matter with Briggs & Stratton that means little today, but could become an issue in the future. Generac exited the portable generator business years ago, and in so doing Briggs & Stratton came to own the trademark to "Generac Portable Products." Generac reentered the business in 2007 and while Briggs & Stratton doesn't presently use that trademark, I suppose it could and create some market confusion in the process.

The Bottom Line

I like the Generac business quite a lot, and I think there are good prospects for both domestic market penetration and overseas growth. What I don't like so much, though, are the expectations already built into the stock.

Generac has recently been delivering free cash flow margins in the high teens, but I think the company is likely to see those fall into the mid-teens as the company invests in growth. Even still, investors should note that the company spends quite little on Capex (relative to sales) compared with most industrial companies. Consequently, while I can see this company growing revenue at a nearly 10% compound rate out past 2000, the free cash flow growth rate is more likely to be in the high single digits.

If Generac grows at an 8%-9% clip, fair value (net of the debt) would seem to be in the high $20s. That said, I would note that the company earns very good returns on capital, enjoys healthy market shares, and has a manufacturing system that should scale well with relatively modest incremental investments. That would lead me to give it some benefit of the doubt in terms of its future growth prospects (and/or the appropriate discount rate), but even an "enhanced" fair value analysis suggests a fair value in the mid-$30s today. To me, then, that makes it a great watch list candidate, but a riskier idea for new money.

Stephen Simpson         www.seekingalpha.com 

Generac Reports Strong 1st Quarter 2012 Results

Significant organic revenue growth and Magnum Products acquisition drive substantial increase in earnings and cash flow - Outlook raised for full-year 2012 - Company announces proposed special cash dividend to shareholders

WAUKESHA, Wis., May 8 -- Generac Holdings Inc., a leading designer and manufacturer of generators and other engine powered products, today reported financial results for its first quarter ended March 31, 2012.

HIGHLIGHTS

• Net sales increased year-over-year by 137.6% to $294.6 million as compared to $124.0 million in the first quarter of 2011.
• Residential product sales increased 153.1% compared to the first quarter of 2011. 
• Commercial & Industrial (C&I) product sales increased 137.0% compared to the prior year first quarter.
• Net sales over the trailing four quarters were $962.6 million and on a pro-forma basis, when including the results for Magnum Products for the entire period, net sales were $1.038 billion.
• Net income increased year-over-year to $30.1 million as compared to $4.8 million for the first quarter of 2011. Adjusted net income increased to $66.1 million from $17.1 million in the first quarter of 2011.
• Diluted net income per common share was $0.44 as compared to $0.07 per share in the first quarter of 2011. Adjusted diluted net income per common share was $0.96 as compared to $0.25 per share in the first quarter of 2011.
• Adjusted EBITDA increased to $75.8 million as compared to $27.5 million in the first quarter last year.
• Cash flow from operations in the first quarter of 2012 was $38.6 million as compared to $12.7 million in the prior year quarter. Free cash flow was $36.4 million as compared to $11.1 million in the first quarter of 2011.
• For the trailing four quarters, net income was $349.9 million; adjusted EBITDA, pro-forma for Magnum Products was $245.9 million; cash flow from operations was $195.6 million; and free cash flow was $183.0 million, which represents 93% of the adjusted net income reported during that time period.

"Our first quarter results demonstrate the significant earnings power and strong free cash flow generation of Generac's business model. With the hard work of our employees and our flexible operations, we were able to quickly meet the increased demand for our products following the major outage events that took place in the second half of 2011," said Aaron Jagdfeld, President and Chief Executive Officer.

"Shipments of home standby generators were again robust during the first quarter, and we continue to gain share in portable generators, further solidifying our leadership position in these markets. Additionally, the Magnum acquisition outperformed our expectations again this quarter as demand for mobile equipment remained strong in the rental markets.

The significant growth that we delivered in the first quarter was a result of solid execution and further illustrates the powerful fundamentals that drive our business."

ADDITIONAL HIGHLIGHTS

Residential product sales for the first quarter of 2012 increased 153.1% to $175.1 million from $69.2 million for the comparable period in 2011. The substantial growth was primarily driven by strong demand for home standby generators resulting from the increased awareness following multiple major outage events in 2011, as well as improved lead times for these products due to increased production levels during the quarter.

Also contributing to the revenue growth were the continued expansion of the Company's distribution network, strong double-digit growth in portable generator shipments and increased revenue from the power washer product line, which was introduced in the first quarter of 2011.

C&I product sales for the first quarter of 2012 increased 137.0% to $105.0 million from $44.3 million for the comparable period in 2011. The increase in net sales was primarily driven by the Magnum Products acquisition and increased shipments into the telecom, healthcare and data center markets.

Additionally, our position as the largest producer of natural gas generators in North America has allowed us to benefit from the continuing shift in the market towards these products. C&I net sales during the first quarter also benefitted from the resolution of backlog related to a short-term gap in the supply of certain components sourced overseas.

Gross profit margin for the first quarter of 2012 was 37.7% compared to 36.8% in the fourth quarter of 2011 and 38.1% in the first quarter of 2011. The mix impact from the addition of Magnum Products sales reduced total company gross margins during the first quarter of 2012 as compared to the first quarter of last year.

This decline in gross margin was partially offset by a higher mix of home standby generators and lower mix of portable generators. In addition, the positive impact from price increases and improved overhead absorption was largely offset by higher commodity costs relative to the prior year.

Operating expenses for the first quarter of 2012 increased by $15.5 million or 43.0% as compared to the first quarter of 2011. These additional expenses were driven primarily by increased variable operating expenses on the substantial increase in organic sales, operating expenses associated with Magnum, increased sales, engineering and administrative infrastructure to support the strategic growth initiatives and higher baseline sales levels of the Company, and increased incentive compensation expenses as a result of the Company's financial performance during the quarter.

Free cash flow was $36.4 million in the first quarter of 2012 as compared to $11.1 million in the same period last year. Strong operating earnings were partially offset by increased working capital investment driven by the replenishment of inventory levels to support higher production rates and seasonal build requirements.

OUTLOOK

Primarily as a result of an increased full-year outlook for residential sales, the Company is revising upward its guidance for full-year 2012. Full-year 2012 total net sales are now expected to increase towards the high end of its previously disclosed mid-to-high teens rate as compared to 2011.

Specifically for the second quarter of 2012, net sales are forecasted to increase approximately 35-40% in comparison to the second quarter of 2011, which reflects the expectation of lead times for residential products returning to more normalized levels during the quarter.

This revised guidance continues to assume no material improvement in the macroeconomic environment and no comparable major outage events during the balance of 2012.

Despite the conservative macro assumptions included in our forecast, both residential and pro-forma C&I product sales during the second half of 2012 are expected to increase at a high-teens rate in comparison to the previous baseline level experienced in the second half of 2010, which is the most recent comparable period with no major outage events.

In accordance with our previously issued guidance, gross margins are expected to remain approximately flat during 2012 as compared to the prior year. In addition, consolidated operating expenses as a percentage of net sales, excluding amortization of intangibles, are also expected to remain slightly higher as compared to 2011, 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 of this revised outlook, Adjusted EBITDA for the full-year 2012 is expected to increase in the mid-teens range compared to 2011, while second quarter 2012 Adjusted EBITDA is expected to increase in the mid-20% range over the comparable prior year period.

PROPOSED SPECIAL CASH DIVIDEND TO SHAREHOLDERS

In addition to the upwardly revised outlook for full-year 2012, the Company is announcing its plan to execute a recapitalization in which it intends to incur, subject to market and other conditions, approximately $650 million of additional debt to fund in large part a special cash dividend of up to $10 per share on its outstanding common stock. As part of this transaction, the Company expects to enter into new debt financing in the aggregate amount of approximately $1.2 billion, which is expected to be comprised of approximately $800 million of senior secured financing and the remainder in senior unsecured financing, the proceeds of which will be used to pay the special cash dividend and refinance the Company's existing credit facilities.

In addition, the Company anticipates its current $150 million unfunded revolver will be replaced with a similar sized asset-backed revolver. The declaration of the special cash dividend will not occur unless new debt financing is obtained under acceptable terms. The Company expects its Board of Directors to declare and the Company to pay the special cash dividend before the end of the second quarter of 2012.

Mr. Jagdfeld continued, "Our ability to return significant capital to shareholders through a special cash dividend is directly attributable to our strong free cash flow and demonstrated track record of paying down debt. We believe a special cash dividend is an effective way for our shareholders to realize the value of our cash flows. We are confident this new capital structure will allow us to further invest in future organic growth initiatives and will provide the flexibility for potential acquisitions in the future."

"As we execute on our Powering Ahead strategic plan, we are focused on growth initiatives that will continue to drive our baseline business higher while also building a company that is significantly more diverse with respect to the products we manufacture and the markets we serve," concluded Mr. Jagdfeld.

 "As we look further out, we continue to be excited about the long-term growth potential for Generac. Given the macro growth drivers for our end markets and the potential for future recovery in residential investment and non-residential construction, we believe our growth prospects are very compelling."

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 through a broad network of independent dealers, retailers, wholesalers and equipment rental companies. The Company markets and distributes its products primarily under its Generac and Magnum brand names.