Generac Power Systems ended an already strong year with record sales in the fourth quarter, including a 40.2% increase from the prior year.
The Town of Genesee-based maker of home standby generators and other energy technology products reported sales of $1.07 billion for the quarter.
For the year, the company’s revenue reached nearly $3.74 billion, a 50.3% increase from 2020.
The earnings news helped push Generac’s stock higher, from around $277 at the close on Tuesday to around $316 as of Wednesday afternoon. The improvement marked a rebound of sorts after the company’s stock had slid from around $506 in early November. A number of analysts had cut their ratings and targets for the company amid concerns about inflation, supply chains and solar power challenges.
Still, Generac has seen a massive increase in value in recent years. It’s market cap was around $7 billion at the onset of the pandemic. It trended upward to around $32 billion in November before declining. Wednesday’s stock price gains pushed the company’s value from around $17.5 billion to nearly $20 billion.
Generac has been seeing strong demand for its residential home standby products in recent years as more people are spending a greater amount of time at home amid the COVID-19 pandemic. Additionally, high profile power outages in some parts of the country have helped fuel demand. The company said the number of home consultations its dealers are doing is at 4-times its 2019 level.
Executives also said Generac’s order backlog continued to grow in the quarter. Previously, the company said it would exit 2022 having caught up on its backlog, but executives now expect to finish the year with a significant order backlog.
The change comes despite improving lead times. Aaron Jagdfeld, chairman, president and chief executive officer of Generac, said the performance in the quarter exceeded expectations as the company was able to build more generators than planned thanks to its operational execution. At the end of the third quarter the lead time for a new generator was 32 weeks, a figure Jagdfeld said has come down by four or five weeks now.
“We’re proud of our execution during the quarter as the continued progress on our capacity expansion helped drive top line results ahead of our expectations despite ongoing supply chain challenges,” Jagdfeld said. “We enter 2022 with considerable visibility and momentum given ongoing robust home standby demand, an expanding Energy Technology solutions portfolio, and strong global demand for our C&I products.”
The growing backlog gave the company the confidence to forecast a net sales increase of 32% to 36% for the year. While Generac has made a number of recent acquisitions, those are expected to account for about 5% to 7% of the increase and the company will benefit from a number of price increases put in place. Only some of those increases were realized during the fourth quarter because of the company’s long lead times and growing backlog.
At least in the fourth quarter, profitability was the one area where Generac did not see the same level of strong growth, although it is not as if the company lost money.
Net income for the fourth quarter was $142.9 million, up 14.3% from $125 million in 2020. For the year, net income increased 57% to $550 million.
Like many companies, Generac dealt with supply chain and logistics challenges in the second half of the year and saw rising costs.
The company’s costs of goods sold in the fourth quarter increased nearly 53%, outpacing the 40% increase in revenue. As a result, Generac’s gross profit margin for the quarter came in at just under 34%, down from 39.4% in the fourth quarter of 2020. Things were slightly better for the full year with gross profit margin falling from 38.5% to 36.4%.
On Generac’s earnings call, Jagdfeld said he expects inflation to continue over the next six to 12 months “in spite of what economists and other talking heads say.”
“They should really go work for a company,” he said. “It’s really just easy, you just look at the costs. I said this a year ago, there’s no way this is transitory. Wages are going up, wages don’t go back down, doesn’t happen, sorry. We look at some of the costs, some of the inputs, they’re not going back down, it’s structural.”
Jagdfeld lamented that the data the Federal Reserve and others have to rely on is backwards looking.
“Every new contract that comes up, I don’t care if it’s for snow plowing, grass cutting, delivering materials to the facilities, trucking, everything that we do is higher,” he said.
