Why Generac Holdings Stock Dropped 11% This Morning

10:45 a.m. EDT: The backup-power generator specialist saw demand fall as fewer storms hit its target markets than usual.

Dan Caplinger
Dan Caplinger
Aug 6, 2015 at 11:34AM

What's happening: Shares of Generac Holdings (NYSE:GNRC) were down 11% as of 10:45 a.m. EDT Thursday following the backup-power generator manufacturer's second-quarter financial report earlier in the morning. Revenue plunged 20% from the year-ago quarter as a lack of bad weather ate into demand, and adjusted earnings fell even more precipitously, missing the consensus estimate among shareholders and prompting another cut in guidance for the full year.

Why it's happening: Even as it has tried to make its business less dependent on the weather, Generac nevertheless sees demand surge when bad storms cause long-term power outages, especially in highly populated areas. Favorable trends following major hurricanes on the East Coast in past years show just how powerful an influence the weather can be on Generac's sales, but a lack of major weather events throughout the U.S. so far this year has had the opposite effect. With potential customers not seeing firsthand the need for backup power supplies, Generac simply doesn't see as much interest when the weather is sunny. Moreover, much of Generac's business in supply power systems to commercial and industrial users comes from the energy industry, and plunging crude oil prices have led to reduced capital spending among the generator-maker's clients there as well.

Generac believes that weather impacts will be temporary, although it cut its guidance for the full year based on the assumption that low levels of adverse weather would continue. In the long run, Generac hopes to diversify its business with strategic moves like its recent acquisition of power-driven tool company Country Home Products that can spur cross-selling opportunities for generator sales. For now, though, Generac can only hope that Mother Nature isn't as kind during the second half of 2015 as it has been recently.