Generac Holdings (GNRC -4.58%) reported second-quarter 2020 results before the market open on Thursday. 

Investors were pleased with the results, propelling shares of the maker of backup generators and other energy technology solutions to a closing gain of 5.8% on Thursday. That brings the stock's 2020 gain up to 47%, making it a particularly strong performer in the industrial sector. The S&P 500 index has returned 1.6% over this period.

We can attribute the market's reaction to both revenue and earnings easily powering by the Wall Street consensus estimates, along with the company increasing its full-year guidance.

Yellow lightning bolt on purple background with "Power Outages" written underneath in yellow.

Image source: Getty Images.

Generac's key numbers


Q2 2020

Q2 2019



$546.8 million

$541.9 million


GAAP net income

$66.1 million

$62.0 million 7%

Adjusted net income

$88.5 million $74.9 million 18%

GAAP earnings per share 

$1.02 $0.98 4%

Adjusted EPS

$1.40 $1.20 17%

Data source: Generac. GAAP = generally accepted accounting principles.

Core revenue growth, which excludes the impact of acquisitions and foreign currency, was also approximately 1%.

Net income includes $11.5 million of charges "relating to restructuring costs and asset writedowns to address the impact of the COVID-19 pandemic and decline in oil prices," the company said in the earnings release. Adjusted net income and EPS exclude these charges and other one-time items.

Why did net income and earnings grow more than revenue? The company's profit margin increased due to a favorable sales mix, slanted much more toward residential products than commercial and industrial products.

Wall Street was looking for adjusted EPS of $0.89 on revenue of $476.9 million, so Generac crushed both expectations.

Generating lots of cash 

Cash flow from operations was $101.8 million, up more than 1,100% from $8 million in the year-ago period. Free cash flow was $89 million as compared with negative $9.8 million in the second quarter of 2019.

While cash flows were strong, their growth wasn't as powerful as the numbers suggest. In the year-ago period, the company made a "significant working capital investment." In other words, the company had easy year-ago comparisons.  

Segment and product class results

Segment results:

  • Domestic sales rose 9% year over year to $460.8 million, driven largely by strong shipments of residential standby and portable generators. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) jumped 17%, driven by a favorable sales mix.
  • International sales (which consists primarily of commercial and industrial products) dropped 29% year over year to $86.1 million, and fell 25% in constant currency. The decline was largely driven by a sharp drop in demand caused by the pandemic. Even before this crisis, the commercial and industrial business was struggling to grow revenue due to slower global economic growth and geopolitical headwinds. Adjusted EBITDA, before deducting for noncontrolling interests, plummeted 77% to $1.9 million.

Product class results:  

  • Residential product sales jumped 27% year over year to $341.4 million.
  • Commercial and industrial product sales fell 33% to $154.9 million. (These categories don't add up to the company's total revenue because there is a relatively small "other" category.) 

What management had to say

Here's part of what CEO Aaron Jagdfeld had to say in the earnings release:

Second quarter revenue and earnings dramatically exceeded our expectations primarily driven by robust demand for home standby generators as a result of the heightened awareness of the need for backup power since the onset of the COVID-19 pandemic. With power outages on the rise, concerns of utility shutoffs in California, an active hurricane forecast for the upcoming season, and Americans spending more time at home, demand for home standby generators is at an all-time high.

Brightened guidance

Management increased its full-year 2020 outlook due to strong demand for its residential backup power products, offset by weakness in its commercial and industrial business.


Prior 2020 Guidance

New 2020 Guidance 

Revenue growth (decline) YOY

(10% to 5%)

5% to 8%
Adjusted EBITDA margin before deducting for noncontrolling interests 19% to 20% 21.5% to 22.5%

Data source: Generac. YOY = year over year.

Going into the earnings release, Wall Street had been modeling for 2020 revenue to decline 4.6% year over year. So the company surprised analysts significantly to the upside with its guidance.

I think it's likely Generac will exceed its 2020 outlook. If any of the factors that are expected to drive demand for home backup power solutions turn out to be worse than the company is anticipating, it should beat its guidance. Unfortunately, it seems likely to me that at least one demand driver (the pandemic in the U.S., California's wildfire season and resultant rolling blackouts, or hurricane season) will turn out worse than is currently widely forecast.