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|Generac Reports First Quarter 2011 Results|
WAUKESHA, Wis., May 05, 2011 (BUSINESS WIRE) --
Generac Holdings Inc. (NYSE: GNRC), a leading designer and manufacturer of backup power generation products, today reported financial results for its first quarter ended March 31, 2011.
"Our first quarter 2011 results were impacted by headwinds in our residential markets, partially offset by improving demand in our Commercial & Industrial markets," said Aaron Jagdfeld, President and Chief Executive Officer of Generac. "We continue to see strong year-over-year growth in our Commercial & Industrial (C&I) products. We have been able to improve our closure rates on sales of C&I products by offering cost effective, innovative back-up power solutions that continue to be adopted by specifying engineering firms and our national account customers. As capital spending for commercial projects further improves, we believe that demand for our C&I products will show continued strength."
"For our Residential product sales, the first quarter of 2011 was challenging given difficult prior year comparables with regards to severe power outages. The prior year first quarter had more severe power outage events as compared with the current year first quarter, impacting year-over-year sales growth for our lower kilowatt portable generators. Additionally, as mentioned last quarter, we saw an increase in seasonal stocking in the fourth quarter of 2010 by certain distribution partners in anticipation of an active winter storm season, which had a residual effect on first quarter 2011 residential generator sales. While the environment for U.S. residential investment continues to be challenging, we believe year-over-year sales trends for our residential products will accelerate from current levels as we execute on our growth initiatives. We are excited about our new licensing arrangement with Honeywell and the launch of our new line of power washers, both of which began shipping late in the first quarter of 2011."
"As we look forward, we are committed to our strategic growth initiatives and are confident in the strong cash flow generation of the business, which allowed us to pre-pay another $24.7 million of term loan debt in April 2011. Our disciplined capital allocation has strengthened our balance sheet, affording us the ability to invest in future growth."
Commercial & Industrial product sales for the first quarter of 2011 increased 15.6% to $44.3 million from $38.3 million for the comparable period in 2010, driven by strong shipments to industrial national account customers and strong demand for our larger industrial systems which benefit from innovative features and value price points. As our national account customers increase capital spending and contractors look to reduce the cost of their projects, Generac has been able to capitalize on these opportunities with our broad C&I product offering and dedicated customer service.
Residential product sales of $69.2 million for the first quarter of 2011 decreased 17.6% compared to $84.0 million in the first quarter of 2010. The majority of this year-over-year sales decline is attributable to a decline in portable generator sales as a result of less severe power outages versus prior year. To a lesser extent, home standby generator sales declined versus prior year due to higher levels of inventory in the channel coming into the year versus prior year.
Gross profit margin for the first quarter 2011 decreased to 38.1% from 39.3% in the same period last year, which was primarily attributable to increased commodity and material costs. We expect that selective price increases implemented during the first quarter of 2011 will begin to be fully realized during the second quarter as we work through quotes, backlog and pricing resets throughout our distribution channels.
Operating expenses for the first quarter of 2011 were essentially flat in comparison with the first quarter of 2010 at $36.0 million. Additional non-cash stock compensation expense of $0.8 million was offset by a $1.0 million reduction in amortization of intangibles. The remaining nominal year-over-year increase in operating expenses was primarily driven by additional infrastructure added to support the long-term strategic growth of the Company.
Adjusted EBITDA of $27.5 million in the first quarter 2011 decreased from $31.8 million in the same period last year as a result of the previously mentioned sales and margin declines.
Interest expense decreased in the first quarter of 2011 to $6.0 million, compared to $8.5 million in the same period last year, contributing to our improved net income compared to prior year. The decline in interest expense is attributable to the debt pre-payments that were made during 2010 that further decreased the leverage of the Company.
Net income for the first quarter 2011 increased to $4.8 million, compared to $2.5 million for the first quarter of 2010. Included in prior year net income was a $4.2 million non-cash write-off of deferred financing costs associated with debt pre-payments in the first quarter of 2010. Adjusted net income as defined in the accompanying reconciliation schedules, which excludes this write-off of deferred financing costs, decreased 15.0% to $17.1 million in the first quarter of 2011 compared to $20.2 million in the prior year.
Net cash provided by operating activities was $12.7 million in the first quarter of 2011, which was $5.8 million lower than the same period last year, as reduced profitability and increased working capital needs were partially offset by reduced cash interest paid during the current year quarter. From a seasonality standpoint, the first quarter of the year is typically the low point with regards to net sales and cash flows.
Mr. Jagdfeld continued, "As we stated last quarter, we remain optimistic that we can deliver moderate total sales growth overall in 2011 while maintaining attractive gross margins and continuing to invest prudently in our operating infrastructure to support our long-term strategic growth plans. Given first quarter 2011 results, we are seeing a sales mix shift towards more C&I products which we believe will continue throughout 2011. Given the headwinds experienced in our residential markets in the first quarter of 2011, assuming no U.S. residential investment recovery in 2011, and assuming no major power outage events in 2011, we anticipate that Residential product sales will be roughly flat with prior year for the remaining three quarters of 2011 and C&I product sales will continue double-digit year-over-year growth."
"From a margin standpoint, we expect higher commodity costs and the weaker U.S. dollar to continue to modestly impact margins. We have implemented price increases and cost reductions that we believe will mostly offset these higher input costs, realization of which will begin in Q2 and Q3, respectively. Additionally, we anticipate that the expected sales mix shift towards C&I products will have a slight unfavorable impact on our overall margins. Even with these margin challenges, we believe that we will still be able to deliver best-in-class EBITDA margins given our advantaged operating model."
"Looking forward, we expect to generate significant free cash flow in 2011 given our attractive margins, asset-light model, favorable tax attributes and low cost debt structure. This cash flow will continue to provide us operational flexibility and allow us to focus on our strategic initiatives to propel the future growth of the Company."
Conference Call and Webcast
Generac management will hold a conference call at 9:00am EDT on Thursday, May 5, 2011 to discuss highlights of this earnings release. The conference call can be accessed by dialing (800) 260-8140 (domestic) or +1 (617) 614-3672 (international) and entering passcode 97648433.
The conference call will also be webcast simultaneously on Generac's website (http://www.generac.com), under the Investor Relations link. The webcast link and any supporting materials will be made available on the Company's website prior to the start of the call.
The webcast is also being distributed through the Thomson Reuters StreetEvents Network. Individual investors can listen to the call at http://www.earnings.com, Thomson Reuters' individual investor portal, powered by StreetEvents. Institutional investors can access the call via StreetEvents (http://www.streetevents.com), a password-protected event management site.
Following the live webcast, a replay will be available on the Company's web site. A telephonic replay will also be available beginning three hours after the call and can be accessed by dialing (888) 286-8010 (domestic) or +1 (617) 801-6888 (international) and entering passcode 48011850. The telephonic replay will be available for 30 days.
Generac company news is available
24 hours a day, on-line at: http://www.generac.com.
Since 1959, Generac has been a leading designer and manufacturer of a wide range of backup power generation products serving residential, light commercial and industrial markets. Generac's power systems range in output from 800 watts to 9 megawatts and are available through a broad network of independent dealers, retailers and wholesalers.
Certain statements contained in this news release, as well as other information provided from time to time by Generac Holdings Inc. or its employees, may contain forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Forward-looking statements give Generac's current expectations and projections relating to the Company's financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan," "intend," "believe," "confident," "may," "should," "can have," "likely," "future" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.
Any such forward looking statements are not guarantees of performance or results, and involve risks, uncertainties (some of which are beyond the Company's control) and assumptions. Although Generac believes any forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Generac's actual financial results and cause them to differ materially from those anticipated in any forward-looking statements, including:
Should one or more of these risks or uncertainties materialize, Generac's actual results may vary in material respects from those projected in any forward-looking statements. A detailed discussion of these and other factors that may affect future results is contained in Generac's filings with the Securities and Exchange Commission, or SEC.
Any forward-looking statement made by Generac in this press release speaks only as of the date on which it is made. Generac undertakes no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
Reconciliations to GAAP Financial Metrics
To supplement the Company's condensed consolidated financial statements presented in accordance with US GAAP, Generac provides a summary to show the computation of Adjusted EBITDA, taking into account certain charges and gains that were taken during the periods presented. The computation of Adjusted EBITDA is based on the definition of EBITDA contained in Generac's credit agreement, dated as of November 10, 2006.
Adjusted Net Income
To further supplement Generac's condensed consolidated financial statements presented in accordance with US GAAP, the Company provides a summary to show the computation of Adjusted net income. Adjusted net income is defined as Net income before provision (benefit) for income taxes adjusted for the following items: cash income tax (expense) benefit, amortization of intangible assets, amortization of deferred loan costs related to the Company's debt, intangible impairment charges, and certain non-cash gains.
Free Cash Flow
In addition, we reference free cash flow to further supplement Generac's condensed consolidated financial statements presented in accordance with US GAAP. Free cash flow is defined as Net cash provided by operating activities less Expenditures for property and equipment and is intended to be a measure of operational cash flow taking into account additional capital expenditure investment into the business.
The presentation of this additional information is not meant to be considered in isolation of, or as a substitute for, results prepared in accordance with US GAAP. Please see our SEC filings for additional discussion of the basis for Generac's reporting of Non-GAAP financial measures.
SOURCE: Generac Holdings Inc.
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