Shares of Generac Holdings Inc. (GNRC) soared more than 13% on Feb 13 to settle at $56.64, after strong fourth-quarter 2013 results were posted. The strong earnings as well as revenues were a result of the company’s organic growth accompanied by contribution from acquisitions.
Adjusted earnings per share for the reported quarter came in at $1.11, exceeding the year-ago figure by 27.6%. Results also surpassed the Zacks Consensus Estimate of 88 cents by 26.1%. On a GAAP basis, Generac generated earnings per share of 69 cents, compared with 41 cents in the fourth quarter of 2012.
For 2013, the company reported adjusted earnings per share of $4.33, up 35.7% year over year. On a GAAP basis, earnings per share were $2.51, up from $1.35 per share in 2012.
Revenues
Generac generated net sales of $376.2 million, up 10.0% year over year, led by increased demand from households for backup power. The acquisitions of Baldor, Ottomotores and Tower Light Srl aided the revenue increase. Reported revenues also beat the Zacks Consensus Estimate of $358.0 million.
Revenues from Residential products dropped 7.8% year over year to $199.1 million. The segment decline was primarily due to fewer shipments of portable generators, offset partially by rise in demand for home standby. The Commercial & Industrial products revenues grew 42.7% year over year to $157.9 million due to increased contributions from Baldor, Ottomotores and Tower Light Srl acquisitions as well as rise in sales of natural gas generators.
In 2013, revenues came in at $1.49 billion, up from $1.18 billion in 2012 and marginally above the Zacks Consensus Estimate of $1.47 billion.
Costs/Margins
Cost of goods sold in the fourth quarter increased 6.8% year over year and represented 61.3% of total revenue, down from 63.1% in the year-ago quarter. As a percentage of total revenue, selling and service, research and development, and general and administrative expenses totaled to 12.8% versus 14.4% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin was 27.5%, registering an increase of 320 basis points (bps) year over year.
Balance Sheet
Exiting the fourth quarter of 2013, Generac’s cash and cash equivalents stood at $150.1 million versus $116.5 million in the preceding quarter. Long-term borrowings and capital lease obligations were $1,175.3 million, down marginally from $1,177.7 million in the third quarter of 2013.
Cash Flow
In 2013, Generac generated roughly $259.9 million cash from operating activities up nearly 10.3% year over year. Capital spending increased 37.4% year over year to $30.8 million. However, free cash flow of the company decreased 9.4% to $88.2 million.
During 2013, the company repaid $901.2 million of long-term borrowings and capital lease obligations, down from $1,175.1 million repaid in 2012. Also, during the year, Generac paid cash dividend totaling $343.4 million compared with $404.3 million in 2012.
Outlook
Based on strong demand expectation, management expects sales in 2014 to grow in the mid single-digit range year over year. Generac expects gross margin to decrease roughly 100 bps year over year in 2014, while operating expenses, as a percentage of sales, are anticipated to increase 100 bps year over year. Adjusted EBITDA margin is expected in the mid-20% range.
Other Stocks to Consider
With a market capitalization of $3.9 billion, Generac currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the industry include IDEX Corp. (IEX), Nordson Corporation (NDSN) and The Middleby Corporation (MIDD). All these stocks carry a Zacks Rank #2 (Buy).
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