Generac to limit diversification, geographic expansion

Company pivoting to natural gas focus moving forward

Generac's headquarters in the Town of Genesee

Waukesha-based Generac Holdings Inc. plans to limit efforts to further diversify its offerings or expand into new geographies and instead focus on natural gas opportunities, Aaron Jagdfeld, Generac president chief executive officer, said Tuesday.

Generac's headquarters in Waukesha.
Generac’s headquarters in Waukesha.

Jagdfeld said the shift was the result of a review of the company’s powering ahead plan and while the company is comfortable with the new products and markets it has entered, the management team felt it was time to refocus.

“I think we all feel that to go further than where we’re at today might be a little bit dilutive in terms of our focus,” he said.

Jagdfeld noted the company had significantly expanded its operations outside the U.S. and Canada over the last several years with about 20 percent of revenue coming from outside those countries in 2016, compared to 1 percent in 2011. That growth was largely the result of a number of acquisitions, including Italy-based Pramac last year.

“We now believe that improving our share position in the countries we operate in today is where our focus is now needed,” Jagdeld said.

He added that the company has already done a lot to diversify its offerings and future diversification should be more selective. Instead, the company is pivoting to a deeper focus on natural gas related opportunities, highlighted by the recent acquisition of Motortech.

“Natural gas is going to be the world’s fuel supply for at least the next 100 years. The economics in favor of it are far too strong,” Jagdfeld said, adding that natural gas generators are increasingly being seen as an option for other applications beyond emergency backup power.

Generac projected its net sales would increase 5 to 7 percent in 2017, with organic sales increasing 1 to 3 percent on a constant currency basis. Jagdfeld said the company’s commercial and industrial businesses were at or near the bottom of the market while residential products remained strong.

“As a result, we are cautiously optimistic in returning to organic growth during 2017,” he said.

The company’s 2016 results were boosted by the Pramac acquisition, which closed in March. Revenue was up 16.7 percent in the fourth quarter to $417.4 million. For the full year, revenue increased 9.7 percent to $1.44 billion.

The domestic segment increased revenue from $326.6 million to $339.7 million in the fourth quarter. Increased shipments of portable generators following Hurricane Matthew helped drive sales while declining shipments of mobile products into oil and gas markets hurt revenues.

The international segment increased revenue from $31.2 million to $77.7 million, primarily because of the Pramac acquisition.

Generac’s net income improved from $9.2 million to $41.5 million in the quarter and jumped 27.1 percent to $98.8 million for the year. Earnings went from 14 cents to 64 cents per diluted share in the quarter and $1.14 to $1.51 per share for the full year. The company credited lower commodity prices, benefits from a strong dollar on overseas sourcing and favorable product mix. The company also had a $40.7 million pre-tax, non-cash impairment charge in the fourth quarter of 2015 that did not occur again.

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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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