Generac Adjusts Proposed Refinancing and Dividend Recapitalization

WAUKESHA, Wis., May 21 -- Generac Holdings Inc., a designer and manufacturer of generators and other engine powered products, announced today that it was adjusting its previously disclosed recapitalization plan in light of recent financing market conditions.

The Company has now determined that it will decrease the total size of its previously announced $1.2 billion financing and will not proceed with its private offering of unsecured notes. The Company instead expects to increase the amount of new senior secured debt to approximately $900 million.

If incurred, the Company will use the proceeds of this new debt financing together with cash on its balance sheet to refinance its existing senior secured credit facility and to pay a special cash dividend of up to $6.00 per share on its common stock. The Company still expects to replace its current $150 million unfunded revolving credit facility with a similar sized asset-based revolving line.

"We believe this revised transaction structure is a disciplined approach towards creating long-term shareholder value and represents an attractive return of capital to shareholders," said Aaron Jagdfeld, President and Chief Executive Officer. "Given our track record of strong free cash flow generation, we are confident this new capital structure will allow us to further invest in our organic growth initiatives and will provide the flexibility for potential acquisitions in the future."

The declaration of the special cash dividend remains subject to market and other conditions, and will not occur unless the new senior secured credit facility is finalized on acceptable terms. Assuming that this financing is obtained, the Company expects its Board of Directors to declare and the Company to pay the special dividend by or shortly after the end of the second quarter of 2012.

Robinson-Patman Act Losing a Lot of Its Punch

May 21 -- A longstanding legal weapon in the small-business arsenal has gotten a lot less powerful.

It's called the Robinson-Patman Act—a Depression-era law intended to keep a level playing field between big firms and small ones. For instance, suppliers can't give a retail chain lower prices than an independent store. And buyers can't knowingly pay lower prices than everyone else.

That's the way it's supposed to work. But a recent study shows that it's much tougher to win lawsuits based on the act than it used to be.

From 2006 through March 31, 2010, plaintiffs, many of them small companies, won just 4% of Robinson-Patman suits in federal courts. That's down from 35% in the years 1982 to 1993, according to the report in the December 2010 issue of the journal Management Science.

What's going on? A couple of landmark cases have raised the burden of proof for small companies that bring suits, says Anthony Dukes, a professor of marketing at the Marshall School of Business at the University of Southern California. Prof. Dukes co-authored the study with Ryan Luchs of Duquesne University's Palumbo Donahue School of Business, Tansev Geylani of the University of Pittsburgh's Joseph M. Katz Graduate School of Business and Kannan Srinivasan of Carnegie Mellon University's Tepper School of Business.

One of those landmark cases involved a type of Robinson-Patman lawsuit called "primary line," where a defendant sells the same type of product as the plaintiff, but at much lower prices.

In this case, a cigarette manufacturer alleged that a larger rival was effectively selling its products at a loss in an effort to stifle competition. In 1993, the Supreme Court ruled against the plaintiff because it hadn't proved a crucial point—that the larger company intended to jack up prices later on to make back the money it had lost with the deep discounts.

The decision represented a shift in legal thinking, according to the recent report. Rather than focusing on the welfare of smaller competitors, the high court focused on how consumers were affected by the price war—hence the emphasis on whether the bigger company planned to raise prices.

"Recoupment is the ultimate object of an unlawful predatory pricing scheme," according to the Supreme Court's majority opinion on the case, written by Justice Anthony Kennedy. If prices don't ultimately go up, that means "predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced."

Between 1982 and 1993, plaintiffs won 57% of primary-line cases, according to the recent study. Since 1993, the year the decision was handed down, the percentage has fallen below 6%, the report says.

Another landmark decision involved a "secondary line" case, where a defendant charges a plaintiff a higher price than its rivals for the same goods.

In this case, a truck dealer alleged that a manufacturer hurt its business by offering other dealers better prices. The Supreme Court ruled against the dealer in a 2006 decision. The court's reasoning, according to the majority opinion written by Justice Ruth Bader Ginsburg: The dealer didn't show that the different pricing made it tougher to compete with rivals for the same customers at the same time.

That represents a much higher standard of evidence, according to the study. Previously, plaintiffs had to show only that there were big price differences in effect for a considerable time. Since this decision came down, the study says, plaintiffs have won fewer than 5% of secondary-line cases—down from 27% between 1982 and 1993.

Perception and Reality

Higher standards for lawsuits mean a tougher road for small businesses, since lawsuits are the only way to pursue violations of the act.

The government hasn't actively enforced Robinson-Patman for decades, says Prof. Dukes, because agencies think the act makes it tougher for more efficient sellers to pass on lower prices to customers.

On the other hand, Prof. Dukes says, even as big companies gain more power, they're still acting like Robinson-Patman is a major concern, which gives small companies a measure of breathing room they wouldn't otherwise have. Big companies regularly train their managers on compliance with the act and are careful to avoid the appearance of direct competition with small companies, such as repackaging products as house brands before slashing prices on them, Prof. Dukes says.

"Our sense is that many people in the industry still believe [the act] is enforced and perceive the threat as more potent than the data indicate," he says.

 Robert J. Toth    www.online.wsj.com   

Home Depot Gets A Weather Boost

May 15 -- Home Depot Inc.'s fiscal first-quarter earnings rose 27% as unseasonably warm weather in many regions across the country inspired customers to complete exterior projects and start spring-related tasks early.

One of the warmest U.S. winters on record particularly helped drive demand in the heavily populated Northeast U.S., though Home Depot also notched a stronger performance in the South and West where weather was more normal. The warmer weather helped encourage customers to tackle some outdoor projects, though some analysts have wondered how much of the retailer's strength of late is due to demand as a result of the strengthening economy or sales being pulled forward.

Craig Menear, Home Depot's merchandising chief, told analysts during a conference call Tuesday that sales of seasonal products including mowers, lawn accessories, and soils and mulches were strong in the latest quarter. Outdoor project items like decks, exterior stains, gutters and fencing also notched double-digit gains.

Chief Executive Frank Blake said when stripping out the favorable weather, Home Depot's results reflected growth in U.S. economic growth , rather than a recovery in the housing market, which he said remains under pressure. Pricing is stabilizing, he added, but not yet solid, and credit availability continued to be constrained.

Still, the nation's largest home-improvement retailer remains bullish and raised its fiscal-year targets. The company now sees earnings of $2.90 a share on a 4.6% jump in sales, up from the February view of $2.79 on roughly 4% sales growth.

Home Depot expects sales to rise this year as it sees firmer demand for repair and remodeling needs. The company is also hoping to see additional benefits from a website upgrade and new offerings, including in-store repair services for power equipment and power tools.

For the quarter ended April 29, Home Depot reported a profit of $1.04 billion, or 68 cents a share, up from a year-earlier profit of $812 million, or 50 cents a share. The most-recent quarter included a 3 cents a share gain from the termination of a senior secured loan. Sales increased 5.9% to $17.81 billion.

Same-store sales rose 5.8%, and climbed 6.1% domestically. Regionally, 38 of Home Depot's 40 top U.S. markets notched growth, and housing-challenged Florida and California continued to recover. The North division notched a double-digit jump in same-store sales, while increases in the South and West were more modest.

Gross margin edged up to 34.7% from 34.6%.

Home Depot's margins have been bolstered of late from the company's investment in its rapid-deployment centers, which has helped put more items in stock and lowered costs. The supply-chain investment has been widely touted by analysts, and helped Home Depot report better same-store sales than rival Lowe's Cos . for 11 consecutive quarters. Lowe' is due to report first-quarter results on Monday, and saw its shares dragged 0.8% lower, to $29.32 following Home Depot's report.

Home Depot said the supply-chain investments allowed it to react faster to demand fluctuations. Chief Financial Officer Carol Tome said in an interview that within that network stores can override orders at the last minute or move products from one market to another.

 www.online.wsj.com 

Study Documenting Engine Failures Requests EPA to Reconsider Ethanol Increase in Gasoline

WASHINGTON, May 16, 2012 -- American Fuel and Petrochemical Manufacturers President Charles T. Drevna issued the following statement in response to a Coordinating Research Council report issued today on the organization's extensive testing of higher ethanol blends in vehicles that the Environmental Protection Agency says can handle

"The Coordinating Research Council's objective scientific tests have found disturbing evidence that increasing the amount of ethanol in gasoline above the current 10 percent causes serious damage to car engines. The study shows that a significant percentage of cars tested suffered engine damage when refueled with 15 percent ethanol. These are cars EPA has approved to run on E15 and are representative of approximately 5 million vehicles in the nation's existing fleet.

"This study represents a growing body of scientific evidence concluding that ethanol in blends greater than 10 percent damages vehicles and outdoor power equipment engines and ultimately leaves consumers forced to pay costly repair bills. Auto manufacturers are now labeling gas caps of new vehicles with a warning against using ethanol in blends greater than 10 percent in an attempt to insulate themselves from liability caused by EPA's approval of E15. Unfortunately, existing vehicles do not contain this warning and consumers may not fully understand its implications, leaving them to foot the bill for damage caused by this alternative fuel.

"Based on this new evidence, Environmental Protection Agency Administrator Lisa Jackson should reconsider her decision to allow the use of 15 percent ethanol blends in the nation's gasoline supply. EPA has a responsibility to protect the American people from inadequately tested fuel blends. Consumers have the right to expect federal officials to devote adequate time and funds to follow real science - not political science - and to put the interests of the American people first. No one should be asked to pump first and ask questions later and become a participant in a giant science experiment to line the coffers of large agribusinesses while overlooking the real-world implications of E15."

About AFPM, the American Fuel and Petrochemical Manufacturers (formerly known as NPRA, the National Petrochemical and Refiners Association) is a trade association representing high-tech American manufacturers of virtually the entire U.S. supply of gasoline, diesel, jet fuel, other fuels and home heating oil, as well as the petrochemicals used as building blocks for thousands of vital products in daily life. AFPM members make modern life possible and keep America moving and growing as they meet the needs of our nation and local communities, strengthen economic and national security, and support 2 million American jobs.

SOURCE American Fuel and Petrochemical Manufacturers

Can Retailers Halt "Showrooming"

Stores Test New Services, Selection; It's About Price

April 11 -- Shoppers who scope out merchandise in stores but buy on rivals' websites, usually at a lower price, have become the bête noire of many big-box retailers.

The trend, known as "showrooming," hurts the bottom lines of traditional stores while benefiting online-only retailers such as Amazon.com Inc., which have the advantage of lower overhead costs and mostly can skirt the collection of sales tax.

To thwart showrooming, Target Corp. earlier this year pushed its suppliers to offer it exclusive products that can't be found elsewhere. It also has quadrupled the number of items available online and is sending special coupons directly to customers' mobile phones. Wal-Mart Stores Inc., meanwhile, is emphasizing in-store pickups for online orders—many available the same day they are purchased—allowing customers to avoid shipping fees.

The real hurdle, though, is pricing. Lower prices are one of the main reasons people pick Amazon and other Internet-only emporiums over traditional retailers. If brick-and-mortar stores can't compete on price, it is unclear how successful they can be with tweaks to merchandising and customer service.

Amazon's prices are 9% lower than Walmart.com's when sales taxes are excluded for Amazon, but shipping is calculated for both, according to a William Blair & Co. study. In the same matchup, Amazon beats Target.com by 14%. Even in states like New York, where Amazon does collect taxes, its prices on consumer electronics were 11% lower than Wal-Mart's in-store prices and 8% below those at Best Buy Co., according to a different study by KeyBanc Capital Markets. 

 

Big retailers often have better prices online than in their stores; Target.com's are 2% cheaper than those in its stores and Wal-Mart's are 1% less, the William Blair study found.

Traditional retailers hesitate to emphasize the price differences between their websites and their stores because they don't want to compete against themselves.

That may be changing, analysts say, as stores realize that the competition isn't between stores and websites, but between their websites and those of other online emporiums. Best Buy, in addition to offering fast free shipping to its best customers, is matching online rivals' prices, which also helps build loyalty among its best customers.

Best Buy Tuesday announced the abrupt departure of its chief executive, Brian Dunn, amid a probe into his "personal conduct." The electronics retailer, which has been especially battered by showrooming and online competition, initially said the reason was that it needed new leadership for new challenges.

Online sales still represent only about 8% of total retail sales in the U.S.—but that is up from just 2% in 2000. Amazon's growth is particularly eye-popping; for 2011 it ranked as the 13th largest retailer in the U.S., up from 19th one year ago. If its growth rate continues, retail analysts expect Amazon to rank 10th as early as the end of this year, displacing Best Buy.

Target is offering daily deals and exclusive coupons via smartphone, in hopes of building shopper loyalty.

Today half of shoppers who buy products online first checked them out in a traditional store, according to a recent study of 900 shoppers by Minneapolis-based research firm ClickIQ Inc. While the majority of survey respondents favored Target and Wal-Mart stores for researching merchandise, half of the online consumers wound up making their purchases on Amazon.

One such shopper is Brandon McDonald, a paper-goods salesman from Nashville, Tenn. Mr. McDonald says he and his wife increasingly come home empty-handed from their neighborhood stores and buy what they need online—even diapers—where they say prices are cheaper and they can usually find what they want.

Wal-Mart, whose gigantic stores once revolutionized retailing, has struggled with its Internet efforts even as lower-income customers have started embracing online buying, experts say. Wal-Mart's online sales are estimated to be about $4.5 billion, or roughly 1% of its annual revenue, according to Kantar Retail, a marketing research firm.

So the company has adopted a new strategy that it calls "endless aisle." When a customer can't find what she wants at a particular location, rather than risk losing a sale, the company encourages clerks to refer her to Walmart.com. It credits each online purchase to the profit ledger of the store closest to the address of the customer who made the purchase, so store workers who get bonuses for meeting and exceeding store sales targets don't see Walmart.com as competition.

Wal-Mart hopes customers will buy online if items aren't in stock, and then pick up merchandise in its store—where they might shop some more. Half the people who buy products on Walmart.com pick up their purchases in the stores, according to a spokesman.

Customers retrieve the purchases from a designated Walmart.com pick-up desk, usually located at the back of the store, so customers still have to tramp through aisles of merchandise—and, the company hopes, make another purchase or two. On a recent Saturday morning at a North Dallas Wal-Mart, a large sign over one register in the customer service area designated it as the place to pick up Internet orders and directed shoppers to touch a computer screen to call a clerk for checkout. No shoppers were waiting.

Some experts wonder if Wal-Mart has the staff and the systems in place to assemble a lot of Internet orders in their stores. "They are not set up to manage on an individual level—picking and setting aside items—and until they do that in a big way they are not taking advantage of their best asset, the immediacy of their stores," said Sucharita Mulpuru, an analyst at technology consultant Forrester Research Inc.

Wal-Mart and Target are also trying apps to drive shoppers to both their stores and websites, allowing them to create shopping lists and, in Target's case, receive daily-deal alerts and exclusive discount coupons on their phones. Some experts think such targeted discounts, along with loyalty rewards programs, may make higher shelf prices less problematic for retailers.

"Offering people personalized prices through their mobile device may be the most effective way to beat showrooming," said Anne Zybowski, director of retail insights for Kantar.

Ann Zimmerman     www.wsjonline.com