Demand for generators drives Generac profit surge

Profits for Waukesha-based Generac Holdings Inc. surged in the first quarter by 68.4 percent. The company today reported first quarter net income of $50.7 million, or 73 cents per share, compared to $30.1 million, or 44 cents per share for the first quarter of 2012.

Net sales for the first quarter increased by 35.7 percent to $399.6 million compared to $294.6 million in the first quarter of 2012.

Residential product sales for the first quarter increased 45.8 percent to $255.2 million. The company said that sales increase was primarily driven by a significant increase in demand for home standby and portable generators created by increased consumer awareness created by major power outages in recent years.

“We have started 2013 with yet another record quarter in revenues and earnings,” said Aaron Jagdfeld, president and chief executive officer at Generac. “Organic revenue growth continues to be very strong and broad based across all major regions of the United States as the market for standby generators continues to expand with more homeowners and businesses becoming aware of the importance of having a backup power solution. We believe the significant growth that we delivered during the quarter has further elevated the Generac brand as being the household name in backup power. Additionally, we took the initial steps in accelerating our Latin American expansion efforts with the first full quarter of the Ottomotores acquisition and we’re excited about the opportunity to execute on the potential revenue and cost synergies of the combined companies.”

Full-year 2013 net sales are now expected to increase at a low-to-mid teens rate over the prior year, the company said.

“We believe that continued underinvestment in the electrical grid, an aging and more electrically dependent population and more severe and unpredictable weather will continue to drive additional awareness of the need for backup power,” concluded Mr. Jagdfeld. “We are also working on a number of strategic initiatives that we believe will further grow our baseline business over the long term. When considering all the compelling macro growth drivers to our business, our internal initiatives, and the potential for a more meaningful recovery in residential investment and non-residential construction, we believe Generac is well positioned for future growth as a more balanced company with improved global focus.”

The company also announced a recapitalization plan in which it intends to incur approximately $335 million of additional debt to fund a special cash dividend of up to $5 per share on its outstanding common stock. The company expects to enter into new debt financing in the aggregate amount of about $1.15 billion, the proceeds of which will be used to pay the special cash dividend and refinance the company’s existing senior-secured term-loan credit facilities. The new debt financing would also include a $150 million asset-based revolving credit facility.

“For a second consecutive year we are pleased to announce that we plan to return significant capital to shareholders through a special cash dividend, which is directly attributable to our strong free cash flow and demonstrated track record of paying down debt,” Jagdfeld said. “We are confident this capital structure will allow us to further invest in organic growth initiatives and provide the flexibility to pursue additional acquisitions in the future. Given the new credit facility is expected to provide a meaningfully lower interest rate than our current facility, we believe this is another attractive use of capital as we continue to drive shareholder value higher through strong execution.”

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