WAUKESHA, Wis. — Generac Holdings Inc., a designer and manufacturer of power generation equipment and other engine powered products, reported financial results for its second quarter ended June 30, 2015.
Second Quarter 2015 Highlights
Net sales were $288.4 million during the second quarter of 2015 as compared to $362.6 million in the prior-year second quarter.
Residential product sales were $133.5 million during the second quarter as compared to $179.6 million in the prior-year quarter, primarily due to lower demand of home standby generators as a result of a power outage severity environment that continues to remain challenging.
Commercial & Industrial (C&I) product sales were $134.6 million during the second quarter as compared to $163.5 million in the prior-year quarter, primarily due to a decline in shipments to oil & gas markets and, to a lesser extent, reduced shipments to telecom national account customers.
- Net income during the second quarter of 2015 was $14.8 million, or $0.21 per share, as compared to $54.0 million, or $0.77 per share, for the same period of 2014. Adjusted net income, as defined in the accompanying reconciliation schedules, was $35.3 million, or $0.50 per share, as compared to $57.1 million, or $0.82 per share, in the second quarter of 2014.
- Adjusted EBITDA, as defined in the accompanying reconciliation schedules, was $52.4 million as compared to $84.5 million in the second quarter last year.
- Cash flow from operations in the second quarter of 2015 was $16.3 million as compared to $48.9 million in the prior year quarter. Free cash flow, as defined in the accompanying reconciliation schedules, was $8.6 million as compared to $40.5 million in the second quarter of 2014.
- As previously announced, the Company on August 1, 2015 acquired Country Home Products and its subsidiaries, a leading manufacturer of high-quality, innovative, professional-grade engine-powered equipment used in a wide variety of property maintenance applications, which are primarily sold in North America under the DR Power Equipment brand. The acquisition provides an expanded product lineup and additional scale to the Company’s residential engine-powered tools platform and is expected to create cross-selling opportunities with existing distribution, along with certain potential cost synergies by leveraging existing global sourcing and manufacturing capabilities.
- On August 5, 2015, the board of directors of the Company approved a stock repurchase program, authorizing the repurchase of up to $200 million of its common stock over the next 24 months.
“The power outage environment continued to remain challenging during the second quarter with overall outage severity during the first half being down significantly compared to prior year,” said Aaron Jagdfeld, President and Chief Executive Officer. “The record-low outage environment coupled with excess field inventory levels exiting the first quarter dampened demand for home standby generators more than expected during the second quarter. In addition, the rapid decline in oil and gas related investment together with ongoing softness in capital spending in the telecom sector continued to have a negative impact on year-over-year growth for our C&I products during the quarter. On the acquisition front, the Country Home Products transaction that we announced earlier this week broadens our residential engine-powered tools platform, while also further diversifying our business.”
Additional Second Quarter 2015 Highlights
Residential product sales for the second quarter of 2015 were $133.5 million as compared to $179.6 million for the second quarter of 2014. The decline was primarily driven by a power outage severity environment that is well below normalized levels year-to-date and significantly below the prior year. The challenging power outage environment resulted in a decline in home standby generators and, to a lesser extent, portable generators.
C&I product sales for the second quarter of 2015 were $134.6 million as compared to $163.5 million for the comparable period in 2014. The decline was primarily due to reduced sales into oil & gas markets in the current year and, to a lesser extent, lower shipments to telecom national account customers as a result of a reduction in capital spending by certain of these customers. Partially offsetting these declines were gains in the industrial distribution channel, improvements in Latin America and contributions from recent acquisitions.
Gross profit margin for the second quarter of 2015 was 33.3% compared to 35.3% in the prior-year second quarter. The decline was driven by the combination of unfavorable absorption of manufacturing overhead-related costs, a lower mix of residential products, and the impact from recent acquisitions.
Operating expenses for the second quarter of 2015 increased $6.6 million, or 13.2%, as compared to the second quarter of 2014, which the prior-year quarter included a $4.9 million gain relating to a remeasurement of a contingent earn-out obligation from a previous acquisition. Excluding this gain, operating expenses increased $1.7 million, or 3.1%, as compared to the prior year, which was primarily driven by the addition of recurring operating expenses associated with recent acquisitions.
Free cash flow was $8.6 million in the second quarter of 2015 as compared to $40.5 million in the same period last year. The decline was the result of lower operating earnings during the current-year quarter along with higher working capital investment as finished goods inventory levels increased due to the softer-than-expected demand during the quarter.
2015 Outlook Update
As a result of current end market conditions, the company is revising its prior guidance for revenue growth and adjusted EBITDA margins for the full year 2015. Assuming that power outages during the second half of 2015 don’t improve from the very low levels experienced during the first half, net sales for 2015 would be expected to decline approximately 10% for the full year. Given these assumptions, adjusted EBITDA margins for the full year are now expected to be approximately 21%. Should the outage severity environment normalize during the second half of 2015, the company could exceed these expectations.
Share Repurchase Authorization
On August 5, 2015, the board of directors of the company approved a stock repurchase program, whereby the company may repurchase up to $200 million of its common stock over the next 24 months from time to time, in amounts and at prices that management deems appropriate, subject to market conditions and other considerations. The repurchases may be executed using open market trades, privately negotiated agreements or other transactions. The repurchases will be funded from cash on hand or available borrowings.
“Although market conditions remained below our expectations in the second quarter of 2015, we believe the numerous secular growth drivers for our business remain in place,” continued Jagdfeld. “We view the current down-cycles in certain of our end markets to be temporary in nature, and remain optimistic on the long-term growth prospects for the company. Given our strong free cash flow generation and current valuation of Generac shares, we believe initiating our first-ever share repurchase program at this time is an attractive use of shareholder capital. We remain committed to our Powering Ahead strategy and we’re confident we will continue to have the financial flexibility to pursue future growth opportunities, both organically and through acquisitions.”
Since 1959, Generac has been a leading designer and manufacturer of a wide range of power generation equipment and other engine powered products. As a leader in power equipment serving residential, light commercial, industrial, oil & gas, and construction markets, Generac's power products are available globally through a broad network of independent dealers, distributors, retailers, wholesalers and equipment rental companies, as well as sold direct to certain end user customers.
For financial tables, go here.