Al Root
Generac stock is on a tear. That's good for shareholders, but it highlights a continuing source of frustration for the company.
Through midday trading on Friday, Generac stock was up just under 20% over the past month. That is the best in the S&P 500, edging out First Solar.
Canaccord analyst George Gianarikas explained the recent run succinctly in a recent research report. "It snowed today in Boston," he wrote. "Snowed. In April."
That had trees down, which means power outages. "Weather has created a significant uptick in recent outages across the country," said Gianarikas. "And the University of Colorado is forecasting an active hurricane season."
Generac has always been a storm stock, rising when the power goes out, which has complicated life for CEO Aaron Jagdfeld. "It used to drive us more nuts," he told Barron's. "When we went public in 2010...we were much more susceptible to weather events because we were a much smaller company."
A major storm can mean $50 million or $100 million of orders. That was a lot in 2010 when annual sales amounted to some $600 million, though it is less significant now. Sales in 2024 are projected to be $4.2 billion.
"Strategy for us isn't about turning the Weather Channel on and watching, " said Jagdfeld. "Strategy needs to be what we can control...but we have to be ready when [storms] happen because [they] always will happen."
One thing Generac has been working to get better control of inventories at its distributors. Covid-19 threw historical ordering patterns for a loop.
"All of the sudden everybody was working from home," said Jagdfeld. "They were experiencing every single minute of [power] outage that could happen in their neighborhood."
That led to an expansion of interest in generators that essentially broke older forecasting models. Backlog started to build and Generac's delivery lead times grew. Dealers reacted by ordering more generators to maintain their place in the queue. When lead times shrank, order cancellations began.
In October 2022, the company slashed its full-year sales guidance by roughly $500 million. Wall Street was expected about $5.1 billion in sales and Generac ended up producing about $4.6 billion.
Problems lingered. In 2023, Generac generated sales of $4 billion, while before the guidance cut, Wall Street projected $5.5 billion in 2023 revenue.
Before the pandemic, Generac didn't penalize its distribution partners for canceling orders. That has changed, and down payments can be required as well.
"As we exit Q1 we feel like inventories are back to normal...that shouldn't be a headwind," said the CEO. Wall Street, for its part, is expecting growth again. The consensus calls are for sales of $4.2 billion in 2024 and $4.6 billion in 2025.
Generac reports its first-quarter results on May 1. Wall Street is looking for sales of about $900 million, which would be flat year over year. After that, Wall Street expects growth to pick up later in the year.
Investors will welcome the turn. Watch the Weather Channel.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 19, 2024 12:59 ET (16:59 GMT)
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