What happened
Shares of Generac (GNRC +2.16%), which makes power generators for homes and businesses, were pulling back today after the company missed the mark on the bottom line in its second-quarter earnings report and cut its guidance for the full year.
As a result, the stock was down 24.4% as of 1:21 p.m. ET.
NYSE: GNRC
Key Data Points
So what
Revenue in the quarter fell 23%, or 26% excluding the impact of acquisitions and currency exchange, to $1 billion, though that still topped estimates at $977.1 million.
The decline in sales came as the company laps a period when it benefited from an excess backlog in home standby generators. Residential product sales were down 44% to $499 million, while commercial and industrial sales rose 24% to $384 million. Management noted that the consumer environment was softer than expected due to a slowdown in home improvement sales.
Gross margin in the quarter fell from 35.4% to 32.8% due to the impact of sales mix shifting from residential to the lower-margin commercial channel. That and a slight increase in operating expenses led to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) falling from $271 million to $137 million.
On the bottom line, adjusted earnings per share came in at $1.08, which compared to $2.86 in the quarter a year ago and estimates at $1.15.
CEO Aaron Jagdfeld said, "While our expectations for the consumer environment are now softer than previously projected, we believe the long-term mega-trends that are driving awareness for backup power solutions are as compelling as ever." Those include more extreme weather events and power grid failures.
Now what
Based on the comments above, management cut guidance for the full year, calling for a decline in revenue of 10% to 12%, compared to a previous decline of 6% to 10%. It also lowered its profit margin forecasts as a result.
The guidance cut seemed to be the main reason for the sell-off today, but the business should eventually bounce back as demand normalizes and the economy recovers.
Additionally, headlines about extreme weather and power grid failures should help spur purchases of its generators, helping Generac, the leader in its industry. Given the strong likelihood of a recovery, investors may want to take advantage of the sell-off and buy the dip.
