Are the Lights About to Go Out on Generac?

Despite early predictions for a year of extreme weather, this hurricane season has instead turned out to be eerily quiet. Now, a company that benefits when the winds go up and the lights go out could see its earnings experience a similar bout of the doldrums.

Generac (NYSE: GNRC  ) , a manufacturer of generators for residential and commercial use, has been running hot this year due to higher demand for backup power, driven in large part by Superstorm Sandy, which ravaged the East Coast last year. 

Hurricane season runs from June to November, and for the quarter that ended just as the season was supposed to kick off, Generac reported that revenues surged 45% due to the lingering effects and memories of the damage of 2012. 

Although Generac says storms like Sandy actually only account for about half of the outages people experience, as a squirrel getting fried in the power lines is just as likely to cause a blackout, a typical year for the generator-maker still sees almost as much as two-thirds of its revenues coming in the third and fourth quarters, not coincidentally because that's when hurricane season is in high gear. 

Rival Briggs & Stratton (NYSE: BGG  ) saw a similar increase in sales of standby and portable generators due to the superstorm, which helped offset overall weakness experienced in engine sales. Meanwhile, Cummins (NYSE: CMI  ) , which is perhaps best known for its heavy-duty truck engines, was able to slightly offset declining revenues from mining and construction sector weakness with slightly higher sales of power generation systems.

Briggs & Stratton offered an earnings outlook for fiscal 2014 that relies on at least a single hurricane making landfall. While we still have a few weeks to go before hurricane season comes to a close, the clock is ticking down on that probability.

On the other hand, Generac revised its 2013 full-year guidance higher because of the strong push it saw earlier this year, but said it didn't need any additional major power outages to hit those targets.

While hurricane season might be in the doldrums this year (and for the past few years, for that matter), the aging power grid ensures we'll continue to have mass outages. Generac says that when they do occur, sales spike, and then stay at those higher levels until the next blackout, which means we can likely anticipate the company enjoying additional sales growth ahead.

Generac's shares doubled in value over the past year, hitting $44 a stub last month, before giving back some of those gains in the past few day. Though the likelihood of a major storm causing a catastrophe this year is now low, winter's coming -- and The Farmer's Almanac predicts a major blizzard for the Super Bowl!  I'd say any further weakness in Generac's stock might energize investors to pick up some shares.

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  • Report this Comment On October 23, 2013, at 5:02 PM, jpokergman wrote:

    Dude.....There are more reasons than just a lousy hurricane to have a robust back-up source of electricity these days. When the lights do go out, they tend to stay out longer than they used to. It seems that Utilities have cut back on crews, and when hit by a huge disaster, many crews from other parts of the U.S. and Canada are dispatched. This works well if only one disaster happens at a time.....But this Fool, knows it is just a matter of time before several hit at once. Such as a "Quake" in Cali. at the same time as a Cat 3 storm in the Gulf.

    Oh...And how does a "Quake" on the west coast have to do with the need for Generators? What a foolish question....Hmmmm Lets see what will happen to all those @home broadband connections? How long will it take a crew to restore Communications? How will people Recharge their Cell phones after 24 hr. ?

    Well golly Gee Batman......It seems oh so very smug folks don't seem to need back-up generators so long as they do not live near a sub-tropical environment.

    Here is my foolish prediction....The next time Northern or Southern California gets smacked with a serious Earthquake, Generac, will be trading 100 points higher within 12 days.

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