Generac Holdings Inc.’s GNRC second-quarter 2015 results came in below expectations, with adjusted earnings of 50 cents per share lagging the Zacks Consensus Estimate of 60 cents. Also, the bottom line declined 39% from the year-ago tally of 82 cents.
Revenues
Generac Holdings generated net sales of $288.4 million in second-quarter 2015, down 20.5% year over year. Also, the top line came below the Zacks Consensus Estimate of $321 million.
As revealed, Residential product sales were down 25.7% year over year to $133.5 million. The decline was triggered by lower demand for home standby generators. Sales of Commercial & Industrial products were $134.6 million, down 17.7% year over year due to weakness in oil & gas markets.
Costs/Margins
In the quarter, Generac Holdings’ costs of goods sold decreased 18% year over year, representing 66.7% of total revenue versus 64.7% a year ago. Gross margin fell 200 basis points (bps) to 33.3%. Selling & service, research & development, and general & administrative expenses totaled $50.5 million and stood at 17.5% of net sales.
Adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) were $52.4 million, down 38% year over year; while margin decreased 510 bps to 18.2%.
Balance Sheet/ Cash Flow
Exiting second-quarter 2015, Generac Holdings had cash and cash equivalents of $155.6 million, up from $150.1 million in the previous quarter. Long-term borrowings edged up to $1,035.2 million from $1,033.6 million at the end of first-quarter 2015.
In first-half 2015, Generac Holdings generated cash of $41.6 million from its operating activities, down from $85.3 million in the year-ago comparable period. The company’s expenditure on purchase of property and equipment increased 7.1% year over year to $14.3 million.
During the period, the company distributed dividends worth $1.4 million.
A day before the earnings release, Generac Holdings announced that its board of directors has approved a $200-million share buyback program. The repurchase can be carried out in the next 24 months. In addition, on Aug 1, the company announced the acquisition of Country Home Products and its subsidiaries. The acquired assets will expand the company’s residential engine-powered tools platform and subsequently, boost top-line growth in the quarters ahead.
Outlook
For 2015, Generac Holdings anticipates sales to decline 10%, worse than flat top-line performance projected earlier. Adjusted EBITDA margin is predicted at roughly 21%, down from the prior expectation of 23%.
With a market capitalization of $2 billion, Generac Holdings currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the machinery industry are Middleby Corp. MIDD, Nordson Corporation NDSN and Graco Inc. GGG. While Middleby sports a Zacks Rank #1 (Strong Buy), both Nordson and Graco carry a Zacks Rank #2 (Buy).
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