Generac Misses on Q1 Earnings, Revs - Analyst Blog

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Generac Holdings Inc. ( GNRC ) reported weak results for the first quarter of 2014, with both earnings as well as revenues declining year over year. Adjusted earnings per share for the reported quarter came in at 72 cents, missing the year-ago earnings by a significant 40.5%. Results also missed the Zacks Consensus Estimate by a cent.

On a GAAP basis, Generac's earnings per share of 50 cents, compared unfavorably with 73 cents reported in the first quarter of 2013. The decline in earnings was primarily a result of reduction in revenues.

Revenues

Generac recorded net sales of $342.0 million, down 14.4% year over year, primarily due to reduction in the Residential Products segment. Reported revenues also missed the Zacks Consensus Estimate of $352.0 million.

Revenues from Residential products dropped 35.7% year over year to $164.0 million. The downside was primarily due to unfavorable temperature and snow, resulting in delayed installations and lower demand for home standby generators. Moreover, first-quarter 2013 revenues were positively impacted by super-storm Sandy.

The Commercial & Industrial products revenues grew 23.8% year over year to $157.4 million due to increased contributions from acquisitions as well as improvement in organic sales.

Costs/Margins

Cost of goods sold in the first quarter decreased 9.6% year over year and represented 65.1% of total revenue, up from 61.6% in the year-ago quarter. Gross margin fell by 350 basis points year over year. As a percentage of total revenue, selling and service, research and development, and general and administrative expenses were 14.3% versus 12.7% in the year-ago quarter. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin were 22.7%, registering 450 basis points (bps) year-over-year decline.

Balance Sheet

Exiting the first quarter of 2014, Generac's cash and cash equivalents stood at $173.7 million versus $150.1 million in the preceding quarter. Long-term borrowings and capital lease obligations were $1,172.4 million, down marginally from $1,175.3 million in the fourth quarter of 2013.

Cash Flow

In the reported quarter, Generac garnered roughly $36.4 million cash from operating activities, down nearly 5.0% year over year. Capital spending increased 14.0% year over year to $4.9 million. Lower cash flow and higher capital expenditure led to 7.4% decline in free cash that came in at $ $31.4 million.

Outlook

Based on the current results, management reiterated its expectations for 2014. Sales in 2014 are expected 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

Generac currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the industry include Gorman-Rupp Co. ( GRC ), IDEX Corp. ( IEX ) and Altra Industrial Motion Corp. ( AIMC ). While Gormun-Rupp sports a Zacks Rank #1 (Strong Buy), IDEX and Altra Industrial Motion have a Zacks Rank #2 (Buy).



ALTRA HOLDINGS (AIMC): Free Stock Analysis Report

GENERAC HOLDING (GNRC): Free Stock Analysis Report

GORMAN RUPP CO (GRC): Free Stock Analysis Report

IDEX CORP (IEX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AIMC , GNRC , GRC , IEX

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