What happened

Shares of Generac (GNRC 2.47%) were moving higher today after the leading manufacturer of generators delivered mixed results in its fourth-quarter earnings report.

The industrial company beat bottom-line estimates in the quarter but said that sales would decline in 2023, as expected.

As of 11:28 a.m. ET, the stock was up 6.8%.

So what

Generac's revenue fell 2% in the quarter to $1.05 billion, while core sales, which includes the impact of acquisitions and currency exchange, were down 7%. That compared with the analyst consensus at $1.07 billion.

Sales in the residential market, its biggest segment, were weak, falling 19% to $575 million. The company said end demand remains strong, but higher field inventory levels weighed on results. Generac finished the quarter with inventories up 29%, a problem that's plagued other retailers and manufacturers.

In the commercial and industrial segment, sales rose 27% to $361 million.

Gross margin fell 130 basis points to 32.7% due to an unfavorable sales mix, and operating expenses rose 26% due primarily to the impact of recurring expenses from previous acquisitions. On the bottom line, the company reported adjusted earnings per share of $1.78, down from $2.51, which edged out expectations at $1.76. 

CEO Aaron Jagdfeld said: "Fourth-quarter and full-year 2022 results came in at the low end of our prior expectations due to continued softness in residential products. Robust momentum continued in the C&I product category as sales exceeded our prior expectations, and we exited 2022 with record backlog for these products."

Now what

Looking ahead, Generac expects a sharp decline in revenue in the first quarter due to elevated field inventory levels, and then sees sales growth recovering by the second half of the year. 

For the first quarter, it expects sales to fall 25% to 26%, worse than the analyst forecast at a 16% decline, while management sees a 6% to 10% slide in revenue for the full year, which was even with estimates. 

While those numbers may seem weak, management was optimistic that performance would strengthen in the second half of the year, and investors were also encouraged by strong adjusted EBITDA margin guidance for the year, at 17% to 18%. 

Given the low expectations coming into the report after the stock had fallen more than 50% over the last year, that seemed to be enough for investors to bid the stock higher.