Generac Reports Strong Third Quarter 2011 Results

WAUKESHA, Wis., Nov 01 -- 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, 2011.

Highlights - -- Total net sales increased year-over-year by 49.0% to $239.3 million as compared to $160.7 million in the third quarter of 2010. -- 60.5% year-over-year growth in Residential product sales.

-- Commercial & Industrial (C&I) product sales up 27.4% compared to prior year.

-- Net income increased year-over-year to $37.4 million as compared to $23.0 million for the third quarter of 2010; Adjusted net income increased 37.8% to $50.6 million from $36.7 million in the third quarter of 2010.

-- Diluted net income per common share was $0.55 per share as compared to $0.34 per share in the third quarter of 2010; Adjusted diluted net income per common share was $0.75 per share as compared to $0.55 per share in the third quarter of 2010.

-- Cash flow from operations in the third quarter 2011 increased 67.3% to $61.0 million as compared to $36.5 million in the prior year quarter.

-- On October 3, 2011, the Company acquired substantially all the assets and certain liabilities of Magnum Products, LLC, funded solely by cash on the balance sheet.

"The third quarter of 2011 was marked by a number of significant milestones for Generac," said Aaron Jagdfeld, President and Chief Executive Officer of Generac.

"We saw record shipments of our residential products following the major power outage events that occurred in the Midwest and along the East Coast during the third quarter. Our sustained efforts over the past three years to build a leading position in the market for portable generators resulted in a sharp increase in sales due to the increased demand for these products in the third quarter. We also saw increased demand for our home standby generators in the quarter and we expect that demand will grow over the next several quarters as homeowners look to protect themselves from future power outages."

"In addition to our record sales during the quarter, in early October we completed our acquisition of Magnum Products, a leading provider of light towers, mobile generators and pumps to the construction, energy and government markets. The Magnum Products business is an excellent strategic fit for Generac as it provides us an entry point into new adjacent power products, new customers and new end markets.

We have been disciplined with the use of our corporate cash having paid down nearly $100 million of debt over the last 12 months. In this acquisition, we saw an opportunity to use cash on our balance sheet to drive an even stronger return for our shareholders."

Residential product sales for the third quarter of 2011 increased 60.5% to $162.1 million from $101.0 million for the comparable period in 2010. Higher shipments of portable generators were the primary driver of this increase, as widespread power outages caused an immediate increase in the demand for back-up power. Following the outage events, sales of home standby generators also increased during the quarter.

Commercial & Industrial product sales for the third quarter of 2011 increased 27.4% to $63.1 million from $49.6 million for the comparable period in 2010.

This outperformance was predominantly driven by timing of larger shipments to certain national account customers given their capital spending requirements during the current year.

Gross profit margin for the third quarter of 2011 was 37.0% compared to 37.4% in the second quarter of 2011 and 41.9% in the same period last year. The majority of the gross margin decline from prior year was attributable to the significant shift in sales mix towards more portable generators in the current year quarter.

To a lesser extent, higher commodity costs versus the prior year also contributed to the year-over-year gross margin decline.

Operating expenses for the third quarter of 2011 increased by approximately $6.9 million or 18.3% as compared to the third quarter of 2010. This was primarily driven by increased variable operating expenses on the 49.0% year-over-year growth in sales, increased sales and engineering costs to support the strategic growth initiatives of the Company, and increased incentive compensation expenses as a result of the Company's financial performance during the quarter.

Adjusted EBITDA of $61.6 million in the third quarter 2011 increased from $45.7 million in the same period last year, resulting in a last-twelve-month's Adjusted EBITDA of $169.4 million.

Interest expense in the third quarter of 2011 declined to $5.9 million, compared to $6.5 million in the same period last year. This decline was a result of nearly $100 million of debt pre-payments that were made over the last 12 months.

Net cash provided by operating activities was $61.0 million in the third quarter of 2011, which was up from $36.5 million in the same period last year. Increased shipments helped to monetize inventory levels generating significant cash flow in the third quarter.

OUTLOOK

Mr. Jagdfeld continued, "Given the major outage events that occurred during the third quarter of 2011, we now expect that residential product sales in the fourth quarter will increase year-over-year by over 30%. We expect that higher residential sales will be primarily driven by increased shipments of home standby generators, as the demand for these products is expected to remain strong into fiscal 2012 in the regions impacted by recent outages.

With regards to C&I product sales, given the timing of certain larger shipments to national account customers in the third quarter of 2011, coupled with a short-term gap in certain Japanese component supply chain, we expect our C&I fourth quarter shipments to be roughly flat compared to the fourth quarter of 2010, excluding the impact of the Magnum Products acquisition."

Regarding the Magnum Products acquisition, Generac expects the transaction to be immediately accretive to earnings in the fourth quarter of 2011, with the opportunity for additional accretion thereafter as a result of anticipated cost synergies. Based on current projections, the acquisition should add approximately $25-$30 million in revenue and $0.03-$0.04 in adjusted diluted earnings per share in the fourth quarter of 2011, excluding certain purchase accounting adjustments.

Fourth quarter 2011 gross margins, excluding Magnum, are expected to sequentially improve from the third quarter due to a sales mix shift towards more home standby generator shipments and the realization of price increases, cost reductions, commodity cost moderation and improved manufacturing overhead absorption. The Company estimates that the inclusion of Magnum's results will reduce total Company gross margins by approximately 250 basis points during the fourth quarter given the current margin profile of the Magnum product line.

Gross margins for Magnum's products are expected to improve in 2012 as synergies are implemented during the year.

Mr. Jagdfeld concluded, "We are very pleased with our third quarter performance as our employees and distribution partners responded quickly to meet the strong demand for portable and home standby generators. With the relatively low penetration of home standby generators, we believe the events of the third quarter will create increased awareness and accelerate the adoption rate for these products.

Additionally, we have a number of initiatives in place through our Powering Ahead strategic plan that, together with our acquisition of Magnum, we believe will help us to gain industrial market share, diversify our end markets, and expand internationally. As a result of these efforts, we believe we are well positioned for 2012 and beyond."

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.

Gasoline Remains King for Snow and Lawn Machines

LOUISVILLE – October 31 - In America's quest for cleaner fuel, at least one major U.S. industry is holding on to the sputter and grime of the internal combustion engine.

From log splitters to snow blowers, the $15 billion outdoor power equipment industry sells tens of millions of oil-powered machines a year to U.S. landscapers, loggers, homeowners and a litany of other buyers.

While lawn mowers get faster, snow blowers cover more ground and handheld products get lighter, their propulsion has barely changed beyond getting more mileage out of gasoline.

This week, at the annual Green Industry and Equipment Expo in Louisville, Kentucky, manufacturers will once again unveil new equipment with some promise of a cleaner, greener future.

"We do anticipate the trend moving in the direction of alternative energy," said Jeff Salamon, director of marketing at MTD Products Inc. "Some customers do like the experience of being unencumbered by exhaust and gasoline."

However, the answers offered will likely be more of the same.

"Gas engines, by and large, are the most efficient way to go," Briggs and Stratton Corp Chief Executive Todd Teske told Reuters in an interview shortly after a press conference to unveil the company's latest engine. Briggs & Stratton sells electric mowers, but only in Australia.

For decades, garden and snow machines were a poster child for harmful emissions. In fact, when auto executives were confronted by regulators for their contributions to pollution, they pointed to the lawn industry as a more offensive culprit.

In the mid-1990s, that began to change as the Environmental Protection Agency began pressuring engine makers with tougher standards.

"These aren't your father's lawn machines," Kris Keiser, president of the Outdoor Power Equipment Institute, said.

At Briggs & Stratton, for example, Teske said emissions have been cut by 75 percent since the mid-1990s thanks to manufacturing upgrades and design improvements. Another 35 percent reduction will come in 2012.

The auto and other industries are under constant pressure to raise fuel economy or tap new technologies because their customers often burn through dozens or more gallons of gasoline each month. As gas prices rise, so does the strain on pocketbooks.

But outdoor equipment users don't face these pressures.

"People who use our products typically use no more than five gallons of gasoline per year," Keiser said. This lessens the likelihood that customers will demand huge advances in fuel economy or solutions that lessen their operating expenses.

Even commercial landscapers here in Louisville do not seem to be budging, despite high weekly fuel costs.

Wang Xiaoguang, general manager of Wenling Leo Garden Machinery Co -- which claims to be the largest exporter of Chinese garden machines -- is learning this lesson first hand.

Standing at his exhibition booth, he talks about Leo's successful business of exporting electric mowers to Europe.

"This customer is different," Wang said of the U.S. market which Leo has yet to crack. "They have different standards."

But some companies, including a handful of start-ups, aren't waiting for customers to change their minds.

Lincoln Jore, a 28-year-old entrepreneur from Ronan, Montana, launched a new "GasLess" outdoor equipment company called Core Outdoor Power on Thursday aimed at commercial landscapers and higher-end homeowners.

His first product, a $249 weed whacker weighing 11 pounds, is powered by an unconventional motor and lithium-ion battery that slips in and out of the machine so it can be charged on a separate dock. It will begin appearing at independent U.S. dealers early next year.

The "market has missed the mark on developing alternative energy products that meet performance expectations," he said.

By 2013, Jore plans to have a broader range of products, including a lawn mower and leaf blower that don't use gas.

But even the most established global players are finding it hard to turn the tide.

Honda Motor Co sells thousands of hybrid snow blowers in Japan annually and is bringing a hybrid model to the United States. This model promises to be the Cadillac of its class, capable of clearing 83 tons of snow in an hour and sweep a city sidewalk in one pass.

But, at $8,000, this machine is twice as expensive as the company's previous top-of-the-line model, and hybrid technology is driving up the cost. Honda's expectations for sales of the Japan-built hybrid are extremely modest, but it wants to test the market before committing to other alternative-energy models.

If Wisconsin-based Ariens Co's experience during last year's tough winter is any indication, there may be hope for Honda. Ariens put on sale an electric snow blower priced 60 percent higher than a conventional model. The company sold out of its limited quantity of electric snow blowers amid heavy snowfall and tight industry capacity.

Stihl Inc, which says it is the No. 1 seller of handheld outdoor power devices, is also branching out. It has a new lineup of chainsaws, leaf blowers, weed whackers and hedge trimmers that are powered by lithium-ion batteries.

The products cost 30 percent more than conventional gas-powered versions and, while initial demand has outstripped expectations, the company said it is too early to break out specific sales results.

Cub Cadet, a brand owned by MTD, has a lithium-ion-powered product line on display similar to those sold by Stihl, but demand so far is only from a "faction" of customers, Salamon said.

Still, Cub Cadet is poised for a shift at some point, even if it is slow going, he noted.

www.reuters.com  

New President at Dixie Chopper

FILLMORE – October 27 -- Magic Circle Corp. (d/b/a Dixie Chopper) today announced that Simon Wilson has been named the company's new president and CEO and has been reconfirmed to the Magic Circle Board of Directors.

Wilson will report to board of Magic Circle Corp. He replaces Gary Morgan, the president and CEO who has resigned to pursue other interests.

"Simon did a great job as our chief financial officer and VP of operations since joining us two and half years ago, and I expect he'll do an even better job as our president and CEO," Magic Circle Chairman Arthur L. Evans said.

"His experience and relevant experience will well suit our needs as a company. He has a background in sales and marketing, aftermarket parts and developing dealer networks."

"Simon is an outstanding executive and a proven winner," Dixie Chopper Vice President Wes Evans said. "I look forward to working with him for years to come. As Dixie Chopper continues to grow, we need people experienced in operating a large business."

New president Wilson is eager for the challenge.

"I believe in Dixie Chopper's strategy of solid, American-built lawn care equipment through an established independent dealer organization will enable Dixie Chopper to take on the competition head-on," Wilson said.

"We are just beginning our growth," he added. "We have some exciting new products we have just announced and more coming shortly. I'm excited to be a part of the most innovative outdoor power equipment company in the industry."

Dixie Chopper manufactures and assembles commercial and residential zero-turn mowers -- marketed as "the world's fastest lawnmowers" -- at its facilities in Fillmore. Art Evans founded the company in 1980.

Management at Brigg's Poplar Bluff Factory Says No More Layoffs

POPLAR BLUFF, Mo. – October 26 -- A major Poplar Bluff manufacturer offered reassurance Friday that the company will not be forced to eliminate jobs because of supply issues.

Concerns were raised about the ability of Briggs and Stratton to operate at the current number of employees should the local Fortis Plastics LLC close. The facility is said to supply a significant amount of the molded plastic components used in Briggs production of lawn mower and small engine parts.

"That is not a concern. There are no additional layoffs planned for the Poplar Bluff Briggs operations," said Briggs Plant Manager Mark Melloy.

The Daily American Republic has been told Fortis announced Oct. 17 to its approximately 130 employees that the site would close. Local Fortis management has said it cannot comment on the matter and phone calls to its parent company, Monomoy Capital Partners, have not been returned.

Melloy said he could not comment specifically about Briggs relationship with Fortis before a formal announcement has been made.

"We have developed contingency plans for potential supplier constraints," Melloy said. "Those contingency plans will allow us to sustain our operations going forward."

The staffing numbers established after the layoff of more than 200 employees Oct. 14 are expected to remain, according to Melloy.

"We hope to see the economic and seasonal recovery continue so we can bring those positions back in the future," said Melloy of the plant, which now has 1,037 workers.

Fortis has announced the closure of two other locations in the last year.

The City Wire in Fort Smith, Ark., reported last week Fortis Plastics there, which employs 100 people, will close between Nov. 4 and Nov. 18. The company cited trouble raising capital for operations when it filed a Worker Adjustment and Retraining Notification (WARN) document. The WARN Act requires companies to notify their workers 60 days in advance of plant closings or mass layoffs.

Staff with the Division of Workforce Development said they have not been notified by Fortis of pending layoffs here.

A Fortis location in Henderson, Ky., which had 60 employees, was expected to be emptied by Friday after equipment there was auctioned following its closure.

http://www.semissourian.com    

Orangeburg Husqvarna Production Problems Cost $55 Million

October 21 -- Outdoor power equipment OEM Husqvarna AB reported that third quarter 2011 net sales, adjusted for exchange rate effects, were down 2%. Net sales were SEK 6,410 million (approx. US$965 million), down from SEK 6,907 million, and operating income for the quarter was SEK 113 million, down from SEK 411 million in 3Q 2010. Income for the 3Q period was SEK 55 million, down from SEK 402 in 3Q 2010.

Third quarter operating income was negatively affected by SEK -83 million. SEK 38 million (approx. $5.7 million) was directly related to production disturbances, SEK 21 million related to the termination of the former CEO’s contract, and SEK 24 million came from items affecting comparability. Changes in exchange rates had a positive effect of SEK 8 million.

Net sales for the group in the first nine months of 2011, adjusted for exchange rate effects, increased by 1%. Net sales for the Group amounted to SEK 25,363 million in the first nine months, compared to SEK 27,446 million in the first nine months of 2010.

Operating income was SEK 1,787 million in the first nine months of 2011, compared to SEK 2,508 million in the first nine months of 2010. Income was SEK 1,220 million in the first nine months of 2011, compared to SEK 1,873 million in the first nine months of 2010.

In the first nine months of 2011 operating income was negatively affected by SEK -453 million, most of it the result of production problems Orangeburg, SC. Production problems accounted for SEK 368 million (approx. $55.4 million), SEK 21 million related to the termination of the former CEO’s contract and SEK 64 million referred to items affecting comparability. In addition, changes in exchange rates had a negative effect of SEK -335 million.

Early in the year Husqvarna said the Orangeburg riding mower manufacturing campus was having significant problems - described as an "increase in material complexity" – as it assimilated production from a recently closed Beatrice, NE plant and accommodated an ambitious number of new product launches.

Husqvarna is one of the world's biggest makers of outdoor power equipment and the Orangeburg plant primarily produces riding lawn mowers for the North American market; some exports go to Europe and other global markets.

”Husqvarna’s consumer business has been affected by the slowdown in the global consumer demand, the uncertain economic environment, and the unfavorable weather," said Acting CEO and President Hans Linnarson. "Operating income for the third quarter declined, mainly as a result of lower sales, unfavorable mix, and higher costs. We have maintained our market positions for forest and garden products both in Europe and North America, despite the supply chain challenges in North America. In some categories, like ride-on and robotic mowers in Europe, we have significantly increased our market shares."

Linnarson said that, in the first nine months of the year, sales in Europe and Asia/Pacific and Construction segments increased and sales in the Americas decreased, adjusted for exchange rate effects.

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