A month has gone by since the last earnings report for Generac Holdings (NYSE:GNRC). Shares have added about 4.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Generac Holdings due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Generac Q4 Earnings & Revenues Top Estimates, Up Y/Y
Generac reported impressive fourth-quarter 2020 results, wherein the top and the bottom lines beat the respective Zacks Consensus Estimate.
Net Income
On a GAAP basis, net income in the December quarter was $125 million or $1.97 per share compared with $69.6 million or $1.12 per share in the prior-year quarter. The improvement primarily resulted from higher operating income.
In 2020, net income was $350.6 million or $5.48 per share compared with $252 million or $4.03 per share in 2019.
Quarterly adjusted net income came in at $135.7 million or $2.12 per share compared with $96.5 million or $1.53 per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 16 cents.
Revenues
Quarterly revenues were a record $761.1 million compared with $590.9 million in the year-ago quarter. The 28.8% improvement was primarily driven by strong demand for residential products. Generac continues to see unprecedented demand for its home standby generators due to higher power outage, while the ‘Home as a Sanctuary’ trend gains traction. The top line beat the consensus estimate of $726 million.
Segment-wise, Domestic revenues increased 37.2% year over year to $645.1 million. The growth was driven by a significant increase in shipments of home standby generators and the ramp up of PWRcell energy storage systems. International revenues declined 4.1% to $116 million. This was due to weakness in global Commercial & Industrial (C&I) product demand in several regions caused by the pandemic.
Product-wise, revenues from Residential products improved 54.6% to $498.7 million. Revenues from C&I products were $198.6 million, down from $217.1 million in the year-ago quarter. Revenues from other product classes came in at $63.8 million, up 24.4%.
In 2020, revenues increased 12.7% year over year to $2,485.2 million.
Other Quarterly Details
Costs of goods sold increased 25% year over year to $460.9 million. Gross profit was $300.2 million, up from $222.2 million with respective margins of 39.4% and 37.6%. The increase was driven by a favorable sales mix from higher shipments of residential products and a lower mix of C&I products.
Total operating expenses were $129.1 million compared with $117.7 million in the prior-year quarter. This was due to higher variable expenses from an increase in sales volumes, incremental spend related to clean energy products and the impact of acquisitions. Operating income came in at $171.1 million, up 63.7%. Adjusted EBITDA was a record $195.8 million compared with $129.1 million in the year-ago quarter.
Cash Flow & Liquidity
In 2020, Generac generated a record $486.5 million of net cash from operations compared with $308.9 million in 2019. Free cash flow was $427.1 million, up from $250.7 million.
As of Dec 31, 2020, the company had $655.1 million in cash and cash equivalents with $841.8 million of long-term borrowings. This compares with the respective tallies of $322.9 million and $837.8 million a year ago.
2021 Outlook
For 2021, Generac expects revenue growth between 25% and 30% year over year. Net income margin (before deducting for non-controlling interests) is expected to be 15-16%, while adjusted EBITDA margin is estimated to be 24-25%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 18% due to these changes.
VGM Scores
Currently, Generac Holdings has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Generac Holdings has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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