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Climate Change Stocks: Will Generac's Earnings Power Past Expectations Again?

By Beth McKenna – Oct 20, 2021 at 12:00PM

Key Points

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The backup generator and renewable energy company's third-quarter earnings likely got a boost from this year's busy hurricane season.

Generac Holdings (GNRC -6.51%), which makes backup power generators and other energy technology solutions, is slated to report its third-quarter 2021 results before the market open on Tuesday, Nov. 2. An analyst conference call is scheduled for 10 a.m. EDT on the same day.

Investors will probably be approaching the report with optimism. Last quarter, the company easily beat Wall Street's consensus estimates for both revenue and earnings.

Moreover, this year's busy hurricane season (which scientists are attributing to climate change) probably drove strong demand in the third quarter for standby generators and some other products Generac sells, such as energy storage solutions. Most notably, in late August, Ida slammed into Louisiana as a category 4 hurricane. In that state alone, it left more than 1 million homes and businesses without power, many for an extended period. 

In 2021, Generac stock is up a whopping 104% through Oct. 19. The S&P 500 index has returned 21.7% so far this year.

Here's what to watch in Generac's third-quarter report.

"Power Outages" written in front of a darkened city skyline.

Image source: Getty Images.

Generac's key numbers

Metric

Q3 2020 Result 

Wall Street's Q3 2021 Consensus Estimate  Wall Street's Projected Change

Revenue

$701.4 million 

$960.5 million

37%

Adjusted EPS

$2.08 $2.42 16%

Data sources: Generac and Yahoo! Finance. EPS = earnings per share.

Generac has beaten Wall Street's earnings estimates in at least the last four consecutive quarters. I think it has a great shot at doing so again.

That said, like most other companies, Generac's input and logistics costs have been increasing. The drivers are inflationary pressure for some commodities and pandemic-driven supply chain issues. Rising costs put pressure on profits. So far, the company has been doing a good job dealing with these headwinds.

For context, in the second quarter, the company's revenue surged 68% year over year to $920 million. Sales grew 64%, excluding the impact of acquisitions and foreign currency exchange. By product class, residential sales (which made up about two-thirds of total sales) jumped 76%, and commercial and industrial sales rose 64%. Domestic sales (which accounted for 81% of total sales) increased 70%, while international sales grew 58%. 

Last quarter, earnings based on generally accepted accounting principles (GAAP) soared 97% to $2.01 per share. Adjusted for one-time items, EPS jumped 71% to $2.39.

As I wrote last quarter: "Generac had relatively easy year-over-year comparables, as the pandemic hurt its commercial and industrial business in the year-ago period. Nonetheless, even taking into consideration the modest growth in the year-ago period (year-over-year sales and adjusted EPS rose 1% and 17%, respectively), the Q2 2021 performance was still strong."

New products and acquisitions

In the third quarter, Generac announced the launch of some new products and made two acquisitions. Both acquisitions and some of the new products are related to clean energy, a space that the company has been aggressively pushing into. On the earnings call, management will probably comment on these topics.

Guidance

Management's outlook will be very important since the market looks ahead. Any notable change in guidance could significantly move the stock in either direction.  

For full-year 2021, management previously guided for:

  • Revenue growth of 47% to 50%.
  • Net income margin before deducting for non-controlling interests: 15.5% to 16%.

Revenue guidance includes about 3% of favorable impact from acquisitions and foreign currency exchange. 

Beth McKenna owns shares of Generac. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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