Generac adds $150 million to sales outlook after ‘better-than-expected’ production improvements

Generac's headquarters in the Town of Genesee

Last updated on May 5th, 2022 at 12:13 pm

Generac Holdings Inc. now expects its sales to be up 36% to 40% in 2022 after the maker of home standby generators and other power products saw “better-than-expected” progress in its efforts to ramp up production.

At the midpoint, the increase represents another $150 million in sales for the company, which previously expected a 32% to 36% increase for the year.

“We continued to experience robust and broad-based growth during the first quarter, and strong execution pushed shipments to new records,” said Aaron Jagdfeld, chairman, president and chief executive officer of Generac. “We made better-than-expected progress towards our production targets, which helped drive our top line beyond expectations during the quarter despite the ongoing challenging operating environment.”

The Town of Genesee-based company has seen a dramatic increase in demand in recent years, particularly for its home standby generators. More people working from and spending time at home during the COVID-19 pandemic, along with high profile power outages, have helped drive demand higher.

The company’s first quarter sales reached $1.14 billion, up from $807 million in 2021. In 2020 and 2019, first quarter sales were less than $500 million.

Generac has been working to keep up with the increased demand for its products. The company’s Wisconsin factory locations include Whitewater, Jefferson and Eagle. It also added a new production facility in Trenton, South Carolina in recent years. Historically, the lead time for a home standby generator was zero to two weeks. Amid supply chain challenges, logistics issues and increased demand, the lead time ballooned to around 30 weeks.

The company has added additional production capacity and now has lead times down to around 20 weeks, but there is also more than $1 billion in order backlog for the company to work through. Jagdfeld said the company would exit the year with a “meaningful backlog.”

“The original assumption … was that we would be back down to our historical lead times, which are zero to two weeks,” Jagdfeld said, adding lead times would still be elevated but would come down from their current 20-week level.

One factor potentially complicating things for Generac is the potential for major power outages to drive in more demand. The company bases its guidance on the assumption of no major power outages. Historically, major outages lead to a spike in demand for the home standby generators as customers decide to invest to avoid future outages.

“I don’t know that we’ll be able to satisfy more of that demand,” Jagdfeld said of the possibility of major outages from hurricanes this year. Those customers would likely end up getting generators in 2023.

While Generac is seeing topline growth, its profitability has taken a hit. Net income for the quarter was around $114 million, down 23.6% from almost $149 million in the first quarter of 2021.

The company’s gross profit margin declined from 39.9% to 31.8% and operating margins went from 23.4% down to 13.6%

Generac’s cost of goods sold increased nearly 60% in the quarter while selling and service expenses were up 44% and general and administrative expenses increased 28%.

Research and development expenses also increased 77% as the company is also investing in an effort to expand its offerings into clean energy and smart home technology.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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