Generac Holdings (GNRC +1.00%) stock gained 8% on Wednesday following the backup power generator and energy technology company's release of its fourth-quarter and full-year 2022 results.
The market's positive reaction is largely attributable to the quarter's adjusted earnings beating Wall Street's expectation and favorable 2023 cash flow guidance. Investors were also likely at least satisfied with 2023 revenue guidance, which was in line with the analyst consensus estimate.
Generac's key quarterly numbers
|
Metric |
Q4 2021 |
Q4 2022 |
Change YOY |
|---|---|---|---|
|
Revenue |
$1.07 billion | $1.05 billion | (2%) |
|
GAAP net income |
$143 million | $71 million | (50%) |
|
Adjusted net income | $162 million | $113 million | (30%) |
|
GAAP earnings per share (EPS) | $2.04 | $0.83 | (59%) |
|
Adjusted EPS | $2.51 | $1.78 | (29%) |
Data source: Generac. GAAP = generally accepted accounting principles. YOY = year over year.
Core sales, which excludes the impact of acquisitions and foreign currency, fell 7%.
Wall Street was looking for Q4 adjusted EPS of $1.76 on revenue of $1.07 billion, so the company beat the profit expectation but missed on the top line.
In the quarter, cash flow from operations was $101 million, up from $62 million in the year-ago period. Free cash flow was $80 million, up from $42 million in the fourth quarter of 2021.
Cash flows also improved from the third quarter, when they were negative. In Q3, the company's profit and cash flow metrics were hurt by two charges totaling $55.3 million -- a bad debt expense stemming from a large clean energy product customer that filed for bankruptcy and clean energy product warranty-related issues.
Generac ended 2022 with cash and cash equivalents of $132.7 million. It has about $1.4 billion in long-term debt.
NYSE: GNRC
Key Data Points
Sales breakdown by product class and geography
Product class:
- Residential product sales decreased 19% year over year to $574.8 million.
- Commercial and industrial (C&I) product sales rose 27% to $361.5 million. (Generac also has a small "other" category.)
Geographic segment:
- Domestic sales declined 3% year over year to $880.6 million, with acquisitions made over the last year contributing about 7% of growth.
- International sales (which consist primarily of commercial and industrial products) grew 22% to $219.2 million, driven by strength in Europe and Latin America. Core growth was about 28%. This metric was hurt by the strength of the U.S. dollar relative to other currencies. (Both categories include intersegment sales, so their total is somewhat higher than the company's total revenue.)
What the CEO had to say
Here's part of CEO Aaron Jagdfeld's statement in the earnings release:
[R]esults 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. Favorable end market demand metrics continued in the home standby category during the quarter, and installation bandwidth improved significantly with our dealer count and activations increasing sequentially from the third quarter. However, higher home standby field inventory levels continued to unfavorably impact orders and shipments during the fourth quarter. In addition, clean energy product shipments were lower during the quarter as we work to further improve the reliability of these products and expand our distribution capabilities.
2023 guidance
|
Metric |
2023 Guidance |
|---|---|
|
Revenue growth relative to 2022 | (10%) to (6%), which would equate to revenue of about $4.10 billion to $4.29 billion |
| Net income margin before deducting for noncontrolling interests | 7.5% to 8.5% (This metric was 8.75% in 2022.) |
| Operating and free cash flow | "Expected to return to strong levels...with conversion of net income to free cash flow expected to be well over 100%." |
Data source: Generac.
The cash flow outlook probably particularly pleased investors. Going into the report, Wall Street had been looking for 2023 revenue of $4.19 billion, so the company's guidance was in line with this estimate.
A challenging year, but long-term growth potential is robust
Generac had a challenging 2022, with some of those challenges expected to persist through the first half of 2023. But management sees better times on the horizon and expects the residential business to return to year-over-year growth in the second half of 2023.
The company's long-term growth potential remains robust. Demand for its backup power products should continue to get a boost from the increasing number of climate change-driven extreme weather events. And its energy technology solutions provide it with the potential to benefit from the next generation of the electric grid.
